Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the
Act. Yes o No ý

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to
be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes ý No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained,
to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company,
or an
emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o
(Do not check if a
smaller reporting company)

Smaller reporting company ý

Emerging growth company ý

If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o No ý

As of June 30, 2017, the aggregate market value of the registrant's common stock held by non-affiliates was approximately $6,574,176 based upon
the closing
sales price of the registrant's common stock on The NASDAQ Global Market on such date.

The
number of shares of the registrant's Common Stock outstanding as of April 9, 2018 was 168,316,084, consisting of 125,698,191 shares of voting common stock and 42,617,893
shares of non-voting common stock. The company also had 5,524,926 shares of convertible preferred stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions
of the proxy statement for the registrant's 2018 Annual Meeting of Stockholders, or Proxy Statement, to be filed within 120 days of the end of the fiscal year ended
December 31, 2017 are incorporated by reference in Part III hereof. Except with respect to information specifically incorporated by reference in this Form 10-K, the Proxy
Statement is not deemed to be filed as a part hereof.

This Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended, or the Exchange Act. All statements other than statements of historical facts contained in this Form 10-K, including statements regarding our future results of operations and financial
position, business strategy, prospective products, product approvals, research and development costs, timing of receipt of clinical trial, field study and other study data, and likelihood of success,
commercialization plans and timing, other plans and objectives of management for future operations, and future results of current and anticipated products are forward-looking statements. These
statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by the forward-looking statements.

In
some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "expect," "plan," "aim," "anticipate," "could," "intend," "target," "project,"
"contemplate," "believe," "estimate," "predict," "potential" or "continue" or the negative of these terms or other similar expressions. The forward-looking statements in this Form 10-K are only
predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business,
financial condition and results of operations. These forward-looking statements speak only as of the date of this Form 10-K and are subject to a number of risks, uncertainties and assumptions
described under the sections in this Form 10-K titled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this
Form 10-K. Forward-looking statements are subject to inherent risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control. The events and
circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we
operate in a dynamic industry and economy. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties that we
may face. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events,
changed circumstances or otherwise.

We are a commercial stage natural-products pharmaceuticals company focused on developing novel, sustainably derived gastrointestinal products on
a global basis. Our wholly-owned subsidiary, Napo Pharmaceuticals, Inc. ("Napo"), focuses on developing and commercializing proprietary human gastrointestinal pharmaceuticals for the global
marketplace from plants used traditionally in rainforest areas. Our Mytesi (crofelemer) product is approved by the U.S. Food and Drug Administration ("FDA") for the symptomatic relief of noninfectious
diarrhea in adults with HIV/AIDS on antiretroviral therapy. In

the
field of animal health, we are focused on developing and commercializing first-in-class gastrointestinal products for companion and production animals, foals, and high value horses.

Jaguar
was founded in San Francisco, California as a Delaware corporation on June 6, 2013. Napo formed Jaguar to develop and commercialize animal health products. Effective as of
December 31, 2013, Jaguar was a wholly-owned subsidiary of Napo, and, until May 13, 2015, Jaguar was a majority-owned subsidiary of Napo. On July 31, 2017, the merger of Jaguar
Animal Health, Inc. and Napo became effective, at which point Jaguar Animal Health's name changed to Jaguar Health, Inc. and Napo began operating as a wholly-owned subsidiary of Jaguar
focused on human health and the ongoing commercialization of, and development of follow-on indications for, Mytesi.

With
the merger effective, we believe that our newly combined company is poised to realize a number of synergistic, value adding benefitsand an expanded pipeline of
potential blockbuster human follow-on indications, a second-generation anti-secretory agent, as well as a pipeline of important animal indications for crofelemer, upon which to build global
partnerships. As previously announced, Jaguar, through Napo, now controls commercial rights for Mytesi for all indications, territories and patient populations globally, and crofelemer manufacturing
is being conducted at a new, multimillion-dollar commercial manufacturing facility that has been FDA-inspected and approved. Additionally, several of the drug product candidates in Jaguar's Mytesi
pipeline are backed by strong Phase 2 evidence from completed Phase 2 trials.

Mytesi
is a novel, first-in-class anti-secretory agent which has a basic normalizing effect locally on the gut, and this mechanism of action has the potential to benefit multiple
disorders. Mytesi is in development for multiple possible follow-on indications, including cancer therapy-related diarrhea; orphan-drug indications for infants and children with congenital diarrheal
disorders and short bowel syndrome (SBS); supportive care for inflammatory bowel disease (IBD); irritable bowel syndrome (IBS); and as a second-generation anti-secretory agent for use in cholera
patients. Mytesi has received orphan-drug designation for SBS.

Napo
launched Mytesi in early 2017 with one full-time-equivalent Mytesi sales representative focused on targeting high-decile prescribing HIV doctors. Napo significantly expanded its
internal national salesforce for Mytesi in Q4, 2017 through the hire in key U.S. markets of six additional full-time sales representatives experienced in the sale of drugs to HIV physicians and
gastroenterologists. Today our sales force of ten highly trained sales representatives, a regional sales director, and our national sales manager are now fully on board and trained on Mytesi. Seven of
these sales representatives are former long-term employees of the HIV portfolio business of drugmaker Bristol-Myers Squibb, while the remainder of the team possess extensive experience in drug sales
to both HIV healthcare providers and gastroenterologists. With support provided by concomitant marketing, promotional activities, patient empowerment programs and medical education initiatives
described below, we expect a proportional response in the number of patients treated with Mytesi.

The
goal of Napo's internal sales team is to deliver a frequent and consistent selling message to targeted, high-volume prescribers of antiretroviral therapies (ART) and to
gastroenterologists who see large numbers of HIV patients. In December 2017 we released the results of a survey of 350 people living with HIV and AIDS regarding the topic of "Talking to Your Doctor
About Symptoms". The survey results show that diarrhea remains prevalent in those living with HIV/AIDS, as 27 percent of respondents living with HIV/AIDS reported that they currently have
diarrhea, while 56 percent reported that they have had diarrhea in the past. Additonally, the results of a recent Napo-sponsored survey of 271 U.S. board certified gastroenterologists indicate
that the number one GI complaint for people living with HIV/AIDS is diarrhea, and 93 percent of U.S. gastroenterologists see patients with HIV/AIDS in their practice.

Key
to the success of our sales representatives in growing Mytesi is differentiating and targeting the right doctorsthose HIV specialists who are high prescribers of ART
medications and those gastrointestinal doctors who see large populations of people living with HIV/AIDS. The target list
of prescribers for our sales reps includes a pool of 3,500 high volume ART prescribing HIV specialists, and

the
1,500 gastroenterologists who see the largest number of people living with HIV/AIDs, and we've strategically placed our sales force in the US geographies with the highest potential, including
Miami/South Florida, Los Angeles/Palm Springs, New York, Houston, Chicago/St. Louis, Indianapolis, Kansas City, Alabama, Atlanta, San Francisco, DC, Pennsylvania, New Jersey, Delaware,
Maryland, Mississippi and Louisiana.

As
we announced on January 22, 2018, preliminary sales of Mytesi for the period of August 1, 2017 through December 31, 2017the period following the
close of the mergerwere approximately $1.40 million, and, as we announced March 2, 2018, we anticipate that Mytesi gross sales for the period of January 1, 2017
through March 31, 2018 will total approximately $3.2 million. Jaguar estimates the potential U.S. market for Mytesi to be approximately $100 million in gross annual sales.

From
September 1, 2017 through November 30, 2017, there was an increase of 86% in new Mytesi prescribers among gastroenterologists and 8% in HIV specialists, coincident
with the deployment of our direct sales force. According to data provided by IQVIA, the number of Mytesi prescriptions written by physicians increased an average of 9.5% each month over the prior
month during the August 1, 2017 through December 31, 2017 period. Additionally, patient redemptions of our Mytesi Copay Savings Card increased an average of 7% each month over the prior
month during the same period.

As
announced January 22, 2018, Napo recently completed the training of 29 health care practitioners (HCPs) and ten patient advocates to serve as members of the Napo Speakers
Bureau. Medical education presentations led by participating HCPsa group that includes HIV/AIDS specialists, infectious disease specialists, gastroenterologists, colorectal surgeons, and
nurse practitionerswill focus on the prevalence and pathophysiology of gastrointestinal consequences of HIV infection and on the latest treatment options for HIV-related diarrhea.
Presentations given by patient advocate members will provide information to people living with HIV (PLWH) about the prevalence of diarrhea in PLWH and offer guidance about talking to HCPs regarding
diarrhea-related concerns.

As
part of Napo's medical and patient education program, the Mytesi direct sales force are planning more than 1,400 live and virtual educational events for 2018. Live events will largely
take place in the following key geographies covered by the Mytesi sales team: Miami/South Florida, Los Angeles/Palm Springs, New York, Houston, Chicago/St. Louis, Indianapolis, Kansas City,
Alabama, Atlanta, San Francisco, DC, Pennsylvania, New Jersey, Delaware, Maryland, Mississippi and Louisiana.

As
we announced March 2, 2018, Napo has signed an agreement with pharmacy services provider Transition Patient Services (TPS) to help streamline and expand nationwide patient
access to Mytesi. Headquartered in Trevose, Pennsylvania, TPS is a direct-to-patient hub-service pharmacy licensed in all 50 states and dedicated to simplifying medication access, increasing
patient engagement, reducing prescription abandonment, and enhancing patient outcomes through confirmed medication acquisition and improved adherence. Under the terms of the aqgreement, TPS will
operate a nationwide pilot program for Mytesi, expected to begin in March 2018. The core benefits of the program, named Mytesi Direct, include streamlining prescription fulfillment for
Mytesi in order to ensure that Mytesi users receive their prescription quickly, coordinating with other Napo programssuch as the Mytesi Copay Savings Card and the NapoCares
Patient Assistance Programto help ensure that patient out-of-pocket expenses for Mytesi are as low as possible, and improving Mytesi refill adherence through the transmission of renewal
reminders to patients. We expect the Mytesi Direct program to significantly reduce barriers to Mytesi access, acquisition and adherence in a highly patient-friendly and
prescriber-friendly mannerhelping us expand the number of patients able to benefit from the novel, first-in-class anti-secretory mechanism of action of Mytesi.

New
crofelemer (Mytesi) data from a supplemental analysis of the ADVENT trial was featured in a poster presentation at the 9th International Aids Society (IAS) Conference on HIV
Science held in July 2017 in Paris, France. The presentation was titled Long-Term Crofelemer Use Gives Clinically Relevant Reductions in HIV-Related
Diarrhea. IAS features the latest HIV science, including basic, clinical and

prevention
research, and brings together a broad cross section of HIV professionals from around the world with a focus on implementationmoving scientific advances into practice. The
results indicate that more than 50% of the patients treated had complete resolution of their diarrhea; and 83% had at least a 50% reduction in diarrhea. Entry criteria required at least 7 watery
stools in a week, and the average was 20 (with some patients having as high at 67 stools in a week).

In
October 2017, Napo launched a national campaigncalled "Keep your pants on... Unless you don't want to"to highlight the need to recognize and treat diarrhea
in people living with HIV/AIDS (PLWHA). The campaign (keep-your-pants-on.com), which launched initially to the 10,000 participants in the AIDS Walk Los Angeles event on October 15, 2017, is
designed to raise awareness and to engage PLWHA in a fun and light way to discuss a topic that can be embarrassing. The campaign integrates live third-party events, including the Greater Palm Springs
Pride event taking place in November 2017, with social media on the web, Twitter, and Facebook. Campaign participants are encouraged to use the hashtag #KeepYourPantsOn when posting photos and videos
to social media. Napo is also running "Keep Your Pants On" digital ads on more than 25 HIV and LGBT media outlets around the U.S.

Additionally
in Q4 2017, Napo launched a print and digital advertising campaign titled "Enough is Enough" to target PLWHA who are tired of planning their lives around diarrhea as well as
HIV physicians and gastroenterologists. The campaign is centered around national HIV magazines, local HIV publications, and publications targeting physicians.

In
October 2017, Napo established a scientific advisory board for each potential follow-on indication currently planned for Mytesi. Napo has developed relationships with more than 30
physicians, pharmacists and patient advocates around the world who are recognized specialists and key opinion leaders in the planned Mytesi follow-on indications, and is conducting outreach efforts to
discuss the possibility of membership in Napo's new scientific advisory boards with these individuals. As announced on October 19, 2017, Dr. Lee Schwartzberg, MD, FACP, a
nationally-recognized medical oncologist and hematologist, has joined Napo's scientific advisory board for cancer therapy-related diarrhea (CTD).

We
are confident that our scientific advisory boards will provide expert, actionable input regarding all aspects of development, including trial design, for Mytesi for our follow-on
indicationseach of which addresses a significant, global, unmet medical need. We also expect that our scientific advisory board members will serve as speakers for our medical education
programs, authors on Napo abstracts and publications, as a resource for media inquiries.

Napo's
HIV Scientific Advisory Board will focus primarily on physician education, and community and global awareness regarding the importance and availability of solutions for neglected
comorbidities, such as the first-in-class anti-secretory mechanism of action of Mytesi for its currently approved indication.

Napo
is pursuing AIDS Drug Assistance Program (ADAP) formulary listing in states where Mytesi is not currently on ADAP formulary. This includes key states such as New York, Florida,
California, Texas, and Georgia. The ADAP program provides Mytesi free of charge to patients who qualify and copay support for some patients who have insurance coverage.

Mytesi
is currently reimbursed by Medicaid in all 50 states. It is also currently covered on 100% of the top 10 commercial insurance plan national forumlaries, representing more than
245 million U.S. lives. Additionally, Napo operates a co-pay coupon program, which helps ensure that the majority of participating patients do not have a Mytesi co-pay greater than $25.
Information about the NapoCares Patient Assistance Program, which assists patients with benefit verification, prior authorization, and claims appeals, can be found at mytesi.com/mytesi-savings.html.

According
to the World Health Organization, there are nearly 1.7 billion cases of diarrheal disease globally every year. Although not all types of diarrhea are secretory in
nature, we view the current, initial approval of Mytesi as the opening of the door to an important pipelinedemonstrating approval by the

FDA
of the Chemistry, Manufacturing and Controls ("CMC") for this natural product, as well as acknowledgement by the FDA of the safety of the product for chronic use for the approved indication.

Two
investigator-initiated trials of Mytesi are underway in breast cancer patients suffering from CTD, one funded by GenetechRoche with Herceptin (enrolling patients), and
one funded by Puma with neratinib (eurolling patients).

According
to data appearing in "Treatment Guidelines for CID" (chemotherapy-induced diarrhea) in the April 2004 issue of Gastroenterology and Endoscopy
News, diarrhea is the most common adverse event reported in chemotherapy patients. Approved third-party supportive care products for chemotherapy-induced nausea and vomiting
(CINV) include Sustol, Aloxi, Akynzeo and Sancuso. According to Transparency Market Research, sales of therapeutics for the prevention of CINV approximated $620 million in 2013, and sales of
such therapeutics are expected to reach $1 billion in 2020.

In
this era of novel targeted agents, epidermal growth factor receptor tyrosine kinase inhibitors (TKIs), in particular, may block natural chloride secretion regulation pathways in the
normal gastrointestinal mucosa, thereby leading to secretory diarrhea. Diarrhea has been reported as the most common side effect of the recently approved CDK 4/6 inhibitor abemaciclib and the pan-HER
TKI neratinib, with occurrence ranging from 86% to >95% in published studies. Diarrhea in this patient population has the potential to cause dehydration, potential infections, and non-adherence to
treatment. A novel anti-diarrheal like Mytesi may hold promise for treating secretory diarrheaand therefore also support long-term cancer treatment adherencein this
population.

As
we announced on January 22, 2018, Napo has accepted a request for support submitted by Dr. Mohamad Miqdady, Chief of Pediatric Gastroenterology, Hepatology and Nutrition
at Sheikh Khalifa Medical City (SKMC) in Abu Dhabi, for an investigator-initiated trial of crofelemer, the active pharmaceutical ingredient in Mytesi, for congenital diarrheal disorders (CDDs) in
children.

CDDs
are a group of rare, chronic intestinal channel diseases, occurring exclusively in early infancy, that are characterized by severe, lifelong diarrhea and a lifelong need for
nutritional intake either parenterally or with a feeding tube. CDDs are related to specific genetic defects inherited as autosomal recessive traits. The incidence of CDDs is prevalent in regions where
consanguineous marriages (related by blood) is part of the culture. CDDs are directly associated with serious secondary conditions including dehydration, metabolic acidosis, and failure to thrive,
prompting the need for immediate therapy to prevent death and limit lifelong disability.

SKMC
is the Abu Dhabi public health system's flagship institution and the largest hospital in the United Arab Emirates (UAE), consisting of a 586-bed tertiary hospital, 14 outpatient
specialty clinics, and the Abu Dhabi Blood Bank, all of which are accredited by Joint Commission International, the oldest and largest healthcare standards-setting and accrediting body in the United
States. Dr. Miqdady is American Board certified in Pediatric Gastroenterology, Hepatology and Nutrition, and he is a member of Napo's Scientific Advisory Board.

Napo
intends to submit documentation in the first half of 2018 to the FDA for the planned formulation of crofelemer appropriate for feeding tube administration to support this
investigation.

As
announced on June 5, 2017, Napo has received orphan drug designation from the FDA for short bowel syndrome (SBS). The Orphan Drug Act provides for granting special status to a
drug or biological product to treat a rare disease or condition upon request of a sponsor. Orphan designation qualifies the sponsor of the drug for various development incentives, including extended
exclusivity, tax credits for qualified clinical testing, and relief of filing fees.

Jaguar's
and Napo's portfolio development strategy involves meeting with Key Opinion Leaders (KOLs) to identify indications that are potentially high-value because they address important
medical needs that are significantly or globally unmet, obtain input on protocol practicality and protocol

generation,
and then strategically sequencing indication development priorities, second-generation product pipeline development, and partnering goals on a global basis, as well as identifying possible
opportunities for a Special Protocol Assessment (SPA) from the FDA. When granted, SPA provides that, upon request, FDA will evaluate within 45 days certain protocols to assess whether they are
adequate to meet scientific and regulatory requirements identified by the sponsor. In 2007, under the SPA process, Napo obtained agreement with the FDA for the design of the pivotal study protocol for
the currently approved indication of crofelemer (Mytesi) for the symptomatic relief of noninfectious diarrhea in adults with HIV/AIDS on antiretroviral therapy. The 2007 SPA agreement was an important
milestone for Napo, allowing Napo to address and mitigate regulatory uncertainty prior to the completion of its final Phase 3 trial of crofelemer for its currently approved indication.

According
to a 2017 report from Research and Markets, the combined global market for prescription and OTC gastrointestinal agents is expected to reach $21 billion by 2025.

Our
management team has significant experience in gastrointestinal product development for both humans and animals. Napo was founded 28 years ago to perform drug discovery and
development by leveraging the knowledge of traditional healers working in rainforest areas. Ten members of the Jaguar and Napo team have been together for more than 15 years. Dr. Steven
King, our executive vice president of sustainable supply, ethnobotanical research and intellectual property, and Lisa Conte, our founder, president and CEO, have worked together for more than
28 years. Together, these dedicated personnel successfully transformed crofelemer, which is extracted from trees growing in the rainforest, to Mytesi, which is a natural, sustainably harvested,
FDA-approved drug.

There
are significant barriers to entry for Mytesi (crofelemer). Through Napo, we hold an extensive global patent portfolio. At the present time we hold 132 issued worldwide patents,
with coverage in many cases that extends until 2031. These issued patents cover multiple indications including HIV-AIDS diarrhea, IBS, IBD, manufacturing, enteric protection from gastric juices, among
others. We also have 85 pending patent applications worldwide in the human and animal health areas that are being prosecuted.

Mytesi
is the first oral drug approved by the FDA under botanical guidance, which provides another barrier to entry from potential generic competition. The FDA requires that the
manufacturer of crofelemer use a validated proprietary bioassay to release the drug substance and drug product of Mytesi. While most generic products are fashioned to meet chemical release
specifications that are in the public domain, the specifics of this assay are not publicly available. In addition, Mytesi is not systemically absorbed, so the classic approach of creating a generic
drug by matching pharmakinetic blood levels is not possible. A generic player would have to conduct costly and risky clinical trials.

The
active ingredient in Mytesi is the basis for our eleven different animal health products across eight different species, all of which work by the same mechanism of action, which is
highly conserved across all mammals. While Jaguar's commercial and development efforts have evolved to focus primarily on Mytesi and human pipeline indications since its merger with Napo, the Company
is continuing animal health initiatives related to Canalevia, its drug product candidate for treatment of various types of diarrhea in dogs, and Equilevia, its non-prescription, personalized, premium
product for total gut health in equine athletes.

As
previously announced, Jaguar has received MUMS (Minor Use and Minor Species) designation status from the FDA for Canalevia for the indication of chemotherapy-induced diarrhea (CID) in
dogs. Jaguar has completed clinical and manufacturing activity for Canalevia for this indication. MUMS designation is modeled on the orphan-drug designation for human drug development and offers
possible financial incentives to encourage MUMS drug development, such as the availability of grants to help with the cost of developing the MUMS drug. Additionally, as announced March 8, 2018,
the FDA's Center for Veterinary Medicine (CVM) has indicated that Jaguar's Reasonable Expectation of Effectiveness (RxE) technical section is complete towards conditional approval of Canalevia
(crofelemer delayed-release tablets) for treatment of CID in dogs, based on CVM's review of the results of Jaguar's completed pilot

study
(CANA-001) of Canalevia for this indication. Jaguar has now completed two of the four required technical sections of the Company's application for conditional approval of Canalevia for CID in
dogs.

As
announced in December 2017, Jaguar has entered into a collaboration agreement with Seed Mena Businessmen Services LLC (SEED) for Equilevia. Based in Dubai in the UAE, SEED is
affiliated with Seed Group, a diversified group of companies under the umbrella of The Private Office of His Royal Highness Sheikh Saeed Bin Ahmed Al Maktoum establishing strategic partnerships with
multinational companies from around the globe in an aim to leverage Seed Group's network to support potential business expansion in the MENA (Middle East and North Africa) region. The UAE has become a
global leader in horse racing, equine endurance competitions, and other equine athletic activities. Gut health is of critical importance in competitive horses, as conditions such as ulcers can
meaningfully impair equine athlete performance, and colic can lead to the death of an otherwise healthy horse in a matter of hours. According to a third-party study titled Results of a large-scale necroscopic study of equine
colonic ulcers, published in the Journal of Equine Veterinary Science in 2005, as many as
55% of performance horses have both colonic and gastric ulcers, and 97% of performance horses have either a gastric (87%) or a colonic (63%) ulcer.

Net
sales in 2017 for Jaguar's non-prescription Neonorm Foal and Neonorm Calf products totaled approximately $422,000. Collaboration revenue totaled approximately $2.9M. Jaguar continues
to maintain a relationship with the Company's dairy market distributor in addition to selling Neonorm directly to end users though neonorm.com.

We
will consider additional animal formulations and additional animal product expenditures from time to time as part of portfolio planning and prioritization in the context of the
combined company.

Crofelemer
is extracted from the Croton lechleri tree, which we sustainably harvest and manage through programs that we have been
developing over the past 28 years. This process has involved working with communities to plant trees, obtaining permits for export, and creating a supply network that is robust and reliable.

We
continue to have working relationships with partners that began in the 1990s. Additionally, through the establishment of a nonprofit called the Healing Forest Conservancy (HFC), our
team has created a long-term mechanism for benefit sharing that recognizes the intellectual contribution of indigenous populations. This program is intended to contribute to the continued strength and
effectiveness of the valued and strategically important relationships we have carefully cultivated over the past 28 years.

Product Pipeline

Human Health

In addition to our Mytesi (crofelemer) product that is approved by the U.S. FDA for the symptomatic relief of noninfectious diarrhea in adults
with HIV/AIDS on antiretroviral therapy, we are also developing a pipeline of prescription drug product candidates to address unmet needs in gastrointestinal health through Napo. Mytesi (crofelemer)
is a novel, first-in-class anti-secretory agent which has a basic normalizing effect locally on the gut, and this mechanism of action has the potential to benefit multiple disorders. Clinical trials
demonstrated that nearly 80 percent of Mytesi users experienced an improvement in their diarrhea over a four-week period. At week 20 of the pivotal trial, over half the patients had no watery
stools, or a 100% decrease, and 83% had at least a 50% decrease in watery stools. Initiation on a new antiretroviral therapy has been shown to causes diarrhea 15% of the time. Our Mytesi pipeline
currently includes prescription drug product candidates for four follow-on indications, several of which are backed by strong Phase 2 evidence from completed Phase 2 trials. In addition,
a second-generation proprietary anti-secretory agent is in development for cholera.

We believe the medical need for Mytesi is significant, compelling, and unmet, and that doctors are looking for a drug product with a mechanism
of action that is distinct from the options currently available to resolve diarrhea. A growing percentage of HIV patients have lived with the virus in their gut for 10+ years, often causing gut
enteropathy and chronic or chronic-episodic diarrhea. According to data from

the
U.S. Centers for Disease Control and Prevention, by 2020 more than 70% of Americans with HIV are expected to be 50 and older.

Market

Number of
Competitors for
Mytesi's Approved/
Anticipated Labelled
Indication

Market Size/Potential

HIV-D

0

We estimate the U.S. market revenue potential for Mytesi to be approximately $100 million in gross annual sales

CTD

0

An estimated 650,000 U.S. cancer patients receive chemotherapy in an outpatient oncology clinic.(1) Comparable supportive care (i.e. CINV) product sales of ~$620 million in 2013, which is projected to reach $1.0 billion by
2020(2)

IBD

0

Estimated 1,171,000 Americans have IBD(3)

IBS-D

3

Most IBS products have estimated revenue potential of greater than $1.0 billion(4)

CDD/SBS-Orphan

0

Financial benefits of Orphan Designation

Cholera (hydration maintenance) PRV (SB-300)

0

Priority review vouchers have recently sold for $125 million to $350 million(5)

In
Aug. 2015, AbbVie Inc. bought a priority review voucher from United Therapeutics Corp for $350 million
(http://www.reuters.com/article/us-abbvie-priorityreview/abbvie-buys-special-review-voucher-for-350-million-idUSKCN0QO1LQ20150819). In Feb. 2017 Sarpeta Therapeutics sold a priority review voucher to
Gilead Sciences, Inc. for $125 million (http://fortune.com/2017/02/21/sarepta-gilead-review-voucher/).

The
following diagram illustrates the mechanism of action of our human and animal gastrointestinal drug products and drug product candidates, which normalize chloride and water flow and
transit time of fluids within the intestinal lumen.

Animal Health

In the animal health space, we focus on developing and commercializing first-in-class gastrointestinal products for companion and production
animals, foals, and high value horses.

Our
pipeline currently includes prescription drug product candidates and non-prescription products targeting eight species. Neonorm Foal is an antidiarrheal product for newborn horses,
which we launched in the United States in early 2016. Neonorm Calf is an antidiarrheal product for preweaned dairy calves, which we launched in the United States at the end of 2014. We are also
developing a pipeline of prescription drug product candidates and non-prescription (non-drug) products to address unmet needs in animal health.

Neonorm
is a standardized botanical extract derived from the Croton lechleri tree. The reception among users of Neonorm Calf and Neonorm
Foal has been positive. In June 2017 we launched neonorm.com, a commercial website for both Neonorm products. As we announced on June 14, 2017, the Organic Materials Review Institute ("OMRI")
has reviewed Neonorm Calf and determined that it is allowed for
use in compliance with the U.S. Department of Agriculture National Organic Program. OMRI is an international nonprofit organization that determines which input products are allowed for use in organic
production and processing.

FDA indicated that use of Canalevia for this indication qualifies as a "minor use"



Commercial launch in
2019

Business Strategy

Our goal is to become a leading human and animal pharmaceuticals company with first-in-class, sustainably derived products that address
significant unmet gastrointestinal medical needs globally. To accomplish this goal, we plan to:

Mytesi is a novel, first-in-class anti-secretory agent which has a basic normalizing effect locally on the gut, and this mechanism of action has
the potential to benefit multiple disorders. Our Mytesi (crofelemer) product is approved by the U.S. FDA for the symptomatic relief of noninfectious diarrhea in adults with HIV/AIDS on antiretroviral
therapy. Jaguar, through Napo, controls commercial rights for Mytesi for all indications, territories and patient populations globally. Mytesi is in development for multiple possible follow-on
indications, including cancer therapy-related diarrhea; orphan-drug indications for infants and children with congenital diarrheal disorders and short
bowel syndrome (SBS); supportive care for inflammatory bowel disease (IBD); irritable bowel syndrome (IBS); and as a second-generation anti-secretory agent for use in cholera patients.

Our
management team collectively has more than 100 years of experience in the development of gastrointestinal prescription drug and non-prescription products. This experience
covers all aspects of product development, including discovery, preclinical and clinical development, GMP manufacturing, and regulatory strategy. Key members of this team successfully developed
Mytesi.

As announced on August 7, 2017, we appointed Pete Riojas, a 29-year pharmaceutical industry veteran, to lead Mytesi sales nationally. We
also significantly expanded our internal national salesforce for Mytesi through the hire in key U.S. markets of ten sales representatives experienced in the sale of drugs to HIV physicians and
gastroenterologists and a regional sales director. Our new sales representatives are

based
in and cover Miami/South Florida, Los Angeles/Palm Springs, New York, Houston, Chicago/St. Louis, Indianapolis, Kansas City, Alabama, Atlanta, San Francisco, DC, Pennsylvania, New Jersey,
Delaware, Maryland, Mississippi and Louisiana. Seven of these sales representatives are former long-term employees of the HIV portfolio business of drugmaker Bristol-Myers Squibb, while the remainder
of the team possess extensive experience in drug sales to both HIV healthcare providers and gastroenterologists.

With
the goal of continuing to drive Mytesi sales and awareness nationwide, our plans for 2018 include plans to increase to a total of 20 sales representatives plus an additional
regional sales manager, the initiation of new and extensive sales and marketing programs, advertising and promotional activities, direct-to-patient hub-service activities, the expected publication of
supplemental data, and an increased focus on patient empowerment and educational programs for the important and neglected comorbidity of diarrhea in people living with HIV. Additionally, as stated
above, we expect Napo's recently signed agreement with pharmacy services provider TPS to help streamline and expand nationwide patient access to Mytesi. The core benefits of the program, named Mytesi
Direct, include streamlining prescription fulfillment for Mytesi in order to ensure that Mytesi users receive their prescription quickly, coordinating with other Napo
programssuch as the Mytesi Copay Savings Card and the NapoCares Patient Assistance Programto help
ensure that patient out-of-pocket expenses for Mytesi are as low as possible, and improving Mytesi refill adherence through the transmission of renewal reminders to patients.

To date, more than 30 key opinion leaders (KOLs) who are recognized specialists in HIV patient care, CTD, IBD, IBS, cholera, SBS, CDD and equine
gut health, are participating in our KOL advisory program in some manner.

Strategically sequence the development of follow-on indications of Mytesi and seek
geographically-focused licensing opportunities

Although it is possible that we may enter into corporate partnering relationships related to Mytesi, our intention would be to retain all
commercialization and promotional rights in the U.S., so that we do not become primarily a royalty-collecting organization, and we are opposed to entering into any Mytesi partnering relationship that
would require splitting indications. We are seeking to put limited geographically-focused partnerships in place in the near term, while also considering possibilities for a worldwide partnership with
a leading global entity (excluding the US commercial rights) in the field of gastrointestinal care and cancer in the long term.

Strategically plan our portfolio in the animal health space

Portfolio planning for the animal health space is of utmost importance to us, given the wide array of potential species-specific products and
because we do not want animal-related research and development activities to divert significant financial resources while we are focusing on growing Mytesi sales and seeking to move our company
towards profitability. Additional formulations and additional animal product expenditures will be considered from time to time as part of portfolio planning and prioritization in the context of the
combined company. Canalevia is our lead veterinary prescription drug product candidate, intended for treatment of various forms of diarrhea in dogs. Our next expected veterinary product commercial
launch will be for Equilevia, a personalized premium proprietary total gut health product for equine athletes, which will be non-prescription.

Reduce risks relating to product development

Risk reduction is a key focus of our product development planning. Mytesi is approved for chronic indication, providing us the ability to
leverage this corresponding safety data when seeking approval for

planned
follow-on indications. Crofelemer manufacturing is being conducted at a new, multimillion-dollar commercial manufacturing facility that has been FDA-inspected and approved. In an effort to
reduce risk further, we have implemented the following approach: First, we meet with key opinion leaders, typically at medical conferencesas we did in 2017 at Digestive Disease Week for
IBS and IBD, the American Society of Clinical Oncology annual meeting, and the Multinational Association of Supportive Care and Congress. Next, we confirm unmet medical needs with these key opinion
leaders, and discuss the practicality of patient enrollment and trial implementation. We then generate protocols to discuss with the FDA, seeking, when possible, special protocol assessments. Our
goal, by the time we start devoting significant funds to a clinical trial, is to have derisked the program as much as we believe we possibly can. We believe this approach will lead to better long-term
outcomes for our products in development.

With
the Merger effective, we believe that our newly combined company is poised to realize a number of synergistic, value adding benefitsand an expanded pipeline of
potential blockbuster human follow-on indications, a second-generation anti secretory agent, as well as a pipeline of important animal indications for crofelemer, upon which to build global
partnerships.

In
May 2016, the New Drug Application ("NDA") and commercial rights for human applications of crofelemer (Mytesi) previously licensed to Salix Pharmaceuticals, Inc. ("Salix") were
transferred to Napo. The active pharmaceutical ingredient ("API") in Mytesi is crofelemer, our proprietary, patented gastrointestinal anti-secretory agent sustainably harvested from the rainforest.

Diarrhea
is a common adverse event seen with chemotherapy agents typically used in breast and colon cancers, and in particular in the more recently introduced therapeutic classes of
epidermal growth factor receptor ("EGFR") monoclonal antibodies and tyrosine kinase inhibitors ("TKI") often used for chronic management of cancer. The increased need for and use of these agents has
made diarrhea one of the most disabling issues for cancer patients.

We
will seek partnerships outside the United States for the above indications, while focusing on development, and commercial access in the United States directly. We are also focused on
investigating SB-300 for various gastrointestinal indications. SB-300 is a distinct and proprietary Jaguar pharmaceutical formulation of a standardized botanical extract, also sustainably derived from
the Croton lechleri tree.

We
believe SB-300, which has the same mechanism of action as crofelemer and is less costly to produce, may support efforts to receive a priority review voucher from the U.S. FDA for a
cholera indication. Priority review vouchers are granted by the FDA to drug developers as an incentive to develop treatments for neglected diseases and rare pediatric diseases. Additionally, we
believe SB-300 represents a long-term pipeline opportunity as a second-generation anti-secretory agent, on a global basis, for multiple gastro-intestinal diseasesespecially in
resource-constrained countries where cost of goods is a factor, in part, because requirements often exist in such regions for drug prices to decrease annually.

Our
human and animal portfolio development strategy is based on identifying indications that are potentially high-value because they address important medical needs that are
significantly or globally unmet, and then strategically sequencing indication development priorities, second-generation product pipeline development, and partnering goals on a global basis.

Our
technology for proprietary gastrointestinal disease products is central to the product pipelines of both veterinary and human indications. Crofelemer is also the API in Canalevia,
our lead prescription drug product candidate, intended for the treatment of various forms of diarrhea in dogs. We expect our first veterinary prescription product launch will be Canalevia for
chemotherapy-induced diarrhea, an interesting commercial synergy with the pursuit of follow-on indications for Mytesi supported by the merger.

Minimal absorption, with plasma concentrations below the level of detection



No clinically relevant drug-drug interactions



No effect on viral load or CD4 counts



Adverse events comparable to those with placebo

The
efficacy of Mytesi 125-mg delayed-release tablets twice daily was evaluated in a randomized, double-blind, 24-week, multicenter study (the ADVENT trial) comprised of a
placebo-controlled (1 month) treatment period and a placebo-free (5 month) treatment period. The study enrolled HIV-positive patients on stable ART with a history of diarrhea for
1 month or more. In the Mytesi 125mg bid group, more than twice as many patients (18% vs. 8% on placebo, p<0.01) achieved the highly rigorous endpoint defined as reduction to
£2 watery stools per week for 2 out of the 4 weeks in the placebo-controlled period (the average baseline in the ADVENT population was 20 watery
stools per week).

In
a supplemental analysis of the ADVENT study population, 78% of patients in the Mytesi 125mg BID group experienced a decrease in watery stools at week 4. Among these patients that
experienced a decrease, 61% had at least a 50% decrease in watery stools. At week 20, 89% of patients in the Mytesi BID group experienced a decrease in watery stools. Among these patients that
experienced a decrease, 83% had at least a 50% decrease in watery stools, and over half of patients had no watery stools at all (100% decrease).

Human Products in Development

Cancer Therapy-Related Diarrhea (CTD)

CTD is a common problem with a relevant mechanism for crofelemer

National Cancer Institute Criteria for Grading Severity of Diarrhea

Grade 1

Grade 2

Grade 3

Grade 4

Patients without a colostomy

Increase of <4 stools per day over pretreatment

Increase of 4 to 6 stools per day or nocturnal stools

Increase of ³7 stools per day or incontinence; need for parenteral support for hydration

Diarrhea
is a common adverse event seen with chemotherapy agents in the therapeutic classes of epidermal growth factor receptor ("EGFR") tyrosine kinase inhibitors ("TKI's") and EGFR
monoclonal antibodies (for breast, lung, and other malignancies). The increased need for and use of these agents has made diarrhea one of the most disabling issues for cancer patients. Crofelemer
offers the potential for an appropriate mechanism of action against this likely secretory diarrhea and has prompted interest among physicians concerned about this diarrheal symptom, stimulating the
aforementioned investigator-initiated trials. Diarrhea is also a common adverse event seen with chemotherapy agents used in colorectal and gastric cancers, and chronic maintenance chemotherapy. There
are currently no anti-diarrhea agents approved generally for chemotherapy-induced diarrhea.

Clinical Studies

A
study titled HALT-D: DiarrHeA Prevention and ProphyLaxis with Crofelemer in HER2 Positive Breast Cancer Patients Receiving Trastuzumab,
Pertuzumab, and Docetaxel or Paclitaxel with or without Carboplatin is currently enrolling patients in conjunction with Georgetown University. The primary objective of the

study
is to characterize the incidence and severity of diarrhea in patients receiving investigational therapy in the setting of prophylactic anti-diarrheal management.

A
second study, titled An open label study to characterize the incidence and severity of diarrhea in patients with early stage HER2+ breast cancer treated with
adjuvant trastuzumab and neratinib followed by neratinib monotherapy, and intensive anti-diarrhea prophylaxis, is currently enrolling patients in conjunction with the
University of California at San Francisco. The study is designed to evaluate crofelemer as a salvage anti-diarrheal therapy used with the investigational breast cancer agent neratinib. The primary
objective is to characterize the incidence and severity of diarrhea in patients with early stage breast cancer receiving adjuvant trastuzumab and neratinib followed by 1 year of neratinib
monotherapy in the setting of prophylactic anti-diarrheal management. The secondary objectives are to evaluate the activity of crofelemer as a rescue anti-diarrheal medication; to assess neratinib
adherence, holds, delays, and early discontinuation throughout the course of study therapy. which includes patients receiving neratinib for >1 year; and to assess overall toxicity including
constipation and cardiac toxicity with concomitant neratinib and trastuzumab.

Irritable Bowel SyndromeDiarrhea Predominant (IBS-D)

Diarrhea is a common symptom of irritable bowel syndrome (IBS), a frustrating, underdiagnosed and undertreated condition. IBS-D is a subtype
characterized mainly by loose or watery stools at least 25 percent of the time. According to the U.S. FDA, studies estimate that IBS affects 10 to 15 percent of adults in the United
States.

Abdominal
pain is the key symptom of IBS, and the pain, which is associated with a change in stool frequency or consistency, can be severe. To improve the diagnosis and outcomes for IBS
patients and to update clinicians on the latest research, Dr. William Chey, a gastroenterologist and professor of medicine and nutrition sciences at the University of Michigan, along with an
international team of collaborators, compiled Rome IV, an updated compendium of diagnostic criteria on functional GI disorders such IBS. Rome IV contains a
chapter titled Centrally Mediated Disorders of Gastrointestinal Pain.

Although
new agents for IBS-D have come on the market, there is an unmet medical need for long-term, safe management of the abdominal pain associated with IBS-D. Mytesi has been
demonstrated to be safe for chronic use, and two studies provide statistically significant results of crofelemer use for abdominal pain in women.

The
largest group of IBS sufferers are those with the subtype referred to as IBS-M (mixed diarrhea and constipation). IBS-M is also referred to as IBS-A, because the condition often
involves frequent alternating between IBS-D and IBS-C (constipation predominant). IBS-M is distressing for patients as well as difficult to diagnose and manage, and is often associated with pain and
urgency as well as significant abdominal distension and bloating. No approved drugs currently exist for IBS-M. Leading gastroenterologists have stated that IBS-C drugs may cause diarrhea in an IBS-M
patient, and an IBS-D drug may cause significant constipation. We therefore believe an opportunity exists for an IBS-M indication for Mytesi. Resultingly, and due to the demonstrated safety of Mytesi
for chronic use and its demonstrated benefit for abdominal pain in women, Napo is considering expanding development efforts to evaluate the IBS-M indication.

Clinical Study

Crofelemer
has been tested in safety studies and two significant Phase 2 studies for IBS-D as detailed below. We recognize that patients suffering from IBS-D or
IBS-M may require a polypharmacetuical approach to their lifetime management of the disease, and are therefore working to develop a low risk study designed to optimize efforts to develop an approved
formulation to address these unmet medical needs.

IBS
symptoms (pain, urgency, stool frequency and consistency, and adequate relief) were self-reported by the patients via an interactive voice response system. Patients needed to exhibit
active disease during the two-week baseline period as defined by a mean daily stool frequency greater than or equal to 2/day, pain score greater than or equal to 1 and stool consistency greater than
or equal to 3 (5-point Lickert scale for pain and consistency) to be enrolled. Patients received treatment for 12 weeks followed by a two-week treatment free period.

The
protocol-specified primary efficacy measure was daily stool consistency. Statistical analysis of the primary endpoint found no significant differences between placebo and any of the
crofelemer dose groups (p ³ 0.1434) and no significant dose relationship was seen with regard to change from Baseline to Month 3 in stool consistency scores
(p = 0.1165) in the ITT population.

A
supplementary analysis of Rome Foundation-defined stool consistency and abdominal pain showed positive results. Responders were subjects who had stool consistency score of
³ 4 for < 25% of days in a given week and ³ 30% improvement in abdominal pain scores a given week
(i.e., Rome Foundation-defined stool consistency and abdominal pain responders).

When
we look at a supplemental analysis at a reduction in a composite abdominal pain/stool consistency endpoint, the regulatory endpoint in accordance with FDA guidance, we see at the
125 mg dose bid a significant 15% difference with just women patients compared to placebo; and a significant 11% when we include both men and women. The current D-IBS products on the market have a
7-8% reduction (Viberzi and Xifaxan).

In
this analysis, Rome Foundation-defined stool consistency and abdominal pain responders were significantly more likely during the entire 3 months in the 125 mg BID group when
compared with placebo (24.2% versus 13.1%, p = 0.0399) and there was a statistical trend in favor of crofelemer 125 mg BID during Months 1 through 2 (27.4% versus 16.4%, p = 0.0640).
Similar positive effects of crofelemer 125 mg BID were observed in female subjects (n = 183). When the supplementary analysis was applied to the female patients, crofelemer at a dose of
125 mg BID was superior to placebo at Month 3 (26.1% vs 10.9%, p=0-0337).



Results: The 125mg bid of crofelemer exhibited a consistent response during each month among most efficacy endpoints in women with d-IBS
reaching statistical significance (p<0.05) for pain.



Crofelemer had little effect on the stool consistency score, though there was a trend toward reduced stool frequency.



Treatment benefits were not apparent in men, although relatively few men enrolled in the trial (13-16/group).



As with previous trials of crofelemer, no drug-related serious adverse events were reported. Adverse event rates were similar across all dose
groups, although in the two highest doses (250 and 500 mg bid) there were a higher percentage of dropouts. There were no drug-related or

Safety: Crofelemer
at doses of 125, 250 and 500 mg had a safety profile that was generally similar to placebo among men and women with d-IBS.

Phase 2A Randomized, double-blind, placebo-controlled study to assess the safety and efficacy of crofelemer for the symptomatic treatment of
diarrhea predominant irritable bowel syndrome (d-IBS) in 240 female subjects 18 years or older with active d-IBS according to the Rome II criteria for the diagnosis of
d-IBS.

The
study consisted of a 2-week screening period and a 12-week blinded treatment period followed by a 4-week treatment-free follow-up period. During the 12-week treatment period 240
subjects were given 125 mg of crofelemer BID or placebo BID and recorded daily assessments of their IBS symptoms in the interactive voice response system.

The
primary endpoint was the change from baseline for overall percentage of abdominal pain/discomfort free days (PFDs). On a daily basis, respondents recorded the intensity of their
abdominal pain/discomfort for that day using the 5-pint Likert scale: 0=none, 1=mild, 2=moderate, 3=intense, 4=severe. Any day that a score of zero (0) was recorded was considered a PFD.

Stool
consistency and abdominal pain endpoints were analyzed using definitions of symptom improvement from a recent FDA guidance on IBS endpoints (March 2010) and recommendations of the
Rome Foundation (letter dated 28 June 2010) concerning the IBS endpoints described in this guidance.

Results: The
overall increase in pain-free days (protocol-specified primary endpoint) for subjects in the crofelemer group was not statistically significant when compared
with subjects in the placebo group (p = 0.5107)

A
supplementary analysis of abdominal pain showed positive results. Responders were subjects who had ³ 30% improvement in abdominal pain scores
a given week (i.e., FDA-defined abdominal pain responders; this definition of abdominal pain responders was presented in the March 2010 guidance on IBS endpoints).

In
this analysis, abdominal pain responders were significantly more likely during Months 1 through 2 (58.3% versus 45.0%, p = 0.0303) and during the entire 3 months (54.2%
versus 42.5%, p = 0.0371) in the crofelemer group when compared to placebo.

Safety: The
overall safety profile for crofelemer 125 mg BID for 12 weeks was comparable to that observed with placebo and was consistent with the IBS population
under study.

Congenital diarrheal disorders (CDD) are a group of rare, chronic intestinal channel diseases, occurring exclusively in early infancy, that are
characterized by severe, lifelong diarrhea and a lifelong need for nutritional intake either parenterally or with a feeding tube. CDDs are related to specific genetic defects inherited as autosomal
recessive traits, and the incidence of CDDs is much more prevalent in regions where consanguineous marriage is part of the culture. CDDs are directly associated with serious secondary conditions
including dehydration, metabolic acidosis, and
failure to thrive, prompting the need for immediate therapy to prevent death and limit lifelong disability.

Orphan Drug: Short Bowel Syndrome (SBS)

SBS is a complex condition characterized by malabsorption of fluids and nutrients due to congenital deficiencies or surgical resection of small
bowel segments. Consequently, patients suffer from symptoms such as debilitating diarrhea, malnutrition, dehydration and imbalances of fluids and salts. This could be due to either a genetic disorder
or premature birth. In countries such as the United Arab Emirates and

We
have completed safety studies of crofelemer in children as young as 3 months of age, and Napo has accepted a request for support submitted by
Dr. Mohamad Miqdady, Chief of Pediatric Gastroenterology, Hepatology and Nutrition at Sheikh Khalifa Medical City (SKMC) in Abu Dhabi, for an investigator-initiated trial of crofelemer, the
active pharmaceutical ingredient in Mytesi, for CDD in children.

We
have received orphan-drug status for Mytesi (crofelemer) for the SBS indication and are pursuing orphan-drug status for CDD. The mission of the FDA Office of Orphan Products
Development is to advance the evaluation and development of products (drugs, biologics, devices, or medical foods) that demonstrate promise for the diagnosis and/or treatment of rare diseases or
conditions.

IBDSupportive Care:

Key opinion leaders ("KOLs") identified an unmet need to treat diarrhea in IBD patients, particularly in specific subsets of patients. KOLs felt
all IBD patients who undergo ileal pouch-anal anastomosis (IPAA) surgery suffer severe, chronic diarrhea following the procedure. Because this is a highly-motivated patient population with a low
placebo-responder risk, we believe a relatively small proof-of-concept trial is the appropriate next step from a development standpoint.

KOLs
felt crofelemer's novel mechanism of action may also prove to be an effective treatment for diarrhea that results from bile acid malabsorption, which has been shown to occur in
approximately 30% of patients with IBD.

Additionally,
KOLs felt crofelemer's novel mechanism of action may prove to be an effective treatment for diarrhea experienced by patients receiving IV infusions of Entyvio, a Takeda
Pharmaceuticals prescription medicine used in adults with moderate to severe ulcerative colitis or Crohn's disease. Secretory diarrhea occurs when the intestine does not complete absorption of
electrolytes and water from luminal contents. This can happen when a nonabsorbable, osmotically active substance is ingested ("osmotic diarrhea") or when electrolyte absorption is impaired ("secretory
diarrhea").

Secretory
diarrhea can result from bacterial toxins, luminal secretagogues (such as bile acids or laxatives), reduced absorptive surface area caused by disease or resection, circulating
secretagogues (such as various hormones, drugs, and poisons), and medical problems that compromise regulation of intestinal function. These studies in acute diarrhea support the normalizing aspect of
the mechanism of action, regardless of the cause of the diarrhea, and are supportive of the supportive care indication under development in IBD patients.

Clinical Study

Completed StudyTravelers' Diarrhea

Phase 2A study of crofelemer in 184 persons in a double-blind, placebo-controlled study for the
symptomatic treatment of acute diarrhea among travelers to Jamaica and Mexico.

The
study was designed to evaluate the effectiveness of crofelemer in the treatment of travelers' diarrhea.

A
total of 184 persons from the United States who acquired diarrhea in Jamaica or Mexico were enrolled in a double-blind, placebo-controlled study examining the effectiveness of three
doses of crofelemer in reducing illness. Subjects were treated with 125 mg, 250 mg, or 500 mg crofelemer or a

matching
placebo four times a day for 2 days. Subjects kept daily diaries of symptoms and were seen each day for 3 days. Of the subjects, 169 (92%) were included in the efficacy
analysis.

The
most common etiological agent identified was enterotoxigenic Escherichia coli, found in 19% of subjects. The mean time interval from taking the first dose of medication until passage
of the last unformed stool during 48-hour therapy (TLUS48) was 38.7 hours for the placebo group.

TLUS48
was shortened by crofelemer:
30.6 h for the 125-mg dose group (p = 0.005);
30.3 h for the 250-mg group; and
32.6 h for the 500-mg group (p = 0.01).

Treatment
failures were seen in 29.3% in the placebo group compared with 7.3% (p = 0.01), 4.3 (p = 0.002), and 9.8 (p = 0.026) in the three treatment
groups. Crofelemer was well tolerated at all doses.

The
study provided statistically significant results of crofelemer use for shortening the duration of travelers' diarrhea. This antisecretory approach works directly against the
pathophysiology of travelers' diarrhea and is not likely to potentiate invasive forms of diarrhea or to produce posttreatment constipation.

Cholera/General Watery Diarrhea

According to the Centers for Disease Control and Prevention of the U.S. Department of Health & Human Services, Cholera is an acute,
diarrheal illness caused by infection of the intestine with the bacterium Vibrio cholerae. An estimated 3-5 million cases and over 100,000 deaths
occur each year around the world. The infection is often mild or without symptoms, but can sometimes be severe. Approximately one in 10 (5-10%) of infected persons will have severe disease
characterized by profuse watery diarrhea, vomiting, and leg cramps. In these people, rapid loss of body fluids leads to dehydration and shock. Without treatment, death can occur within hours. At this
time, for example, the largest cholera outbreak in recorded history is occurring in Yemen.

We
are investigating SB-300 for the indication of cholera/general watery diarrhea. SB-300 is a distinct and proprietary Napo pharmaceutical formulation of a standardized botanical
extract, also sustainably derived from the Croton lechleri tree. We believe SB-300 represents a long-term pipeline opportunity as a second-generation
anti-secretory agent, on a global basis, for multiple gastro-intestinal diseases. Additionally, we believe SB-300, which has the same mechanism of action as crofelemer and is less costly to produce,
may support efforts to receive a priority review voucher from the U.S. FDA for a cholera indication. Priority review vouchers are granted by the FDA to drug developers as an incentive to develop
treatments for neglected diseases and rare pediatric diseases. If approved for this indication, SB-300 could serve as long-term pipeline anti-secretory agent for cholera/general watery diarrhea in
geographies where cost of goods is a critical factor, for example, in resource-constrained regions and countries in which a requirement exists for drug prices to decrease annually.

Clinical Study

We
have initiated CMC and have multiple animal and human studies in secretory diarrheas with SB-300. We have also completed a successful trial design for cholera with
an anti-secretory mechanism of action, published studies with crofelemer in patients with cholera and other acute severe watery diarrhea disease.

Phase 2 study of crofelemer in the treatment acute, severely dehydrating watery diarrhea with confirmed cholera
with the use of an antibiotic (azithromycin) and oral rehydration therapy in 100 adult patients between 18 and 55 in Bangladesh.

A
total of 100 adult patients, from Bangladesh, between the ages of 18 and 55, with acute, severely dehydrating watery diarrhea with confirmed cholera were treated with crofelemer on a
background of an antibiotic (azithromycin) and oral rehydration therapy. After a four-hour period of rapid rehydration therapy, patients were randomized 1:2:2 to placebo or 125 mg or 250 mg oral dose
of crofelemer. Crofelemer or placebo doses were administered about one hour after the oral administration of azithromycin (1 gm dose). The primary objective was to evaluate the safety and effects of
crofelemer on reducing the watery stool output normalized to body weight (mL/kg) in the first 24 hours on the background of azithromycin and rehydration therapy. Crofelemer was well tolerated
and there were no drug related adverse events in this study. Both doses of crofelemer produced approximately 25-30% reduction in median watery stool volumes in the 0-6 and 0-12 hour period
following initiation of therapy. Crofelemer showed a strong trend in the reduction of watery stool output in the 0-6 hour and 0-12 hour intervals (p=0.07). Upon exclusion of three
outlier patients, the crofelemer dose of 125 mg produced a statistically significant reduction in the normalized stool output (p=0.028) and the dose of 250 mg crofelemer showed a strong trend for
reduction of watery stool output (p=0.07).

In
another study, the effects of crofelemer were evaluated in patients with acute dehydrating watery diarrhea caused by various bacterial pathogens, such as enterotoxic strains of
Escherichia coli (ETEC) and Vibrio cholerae infection. Crofelemer was evaluated in adult Indian patients with acute watery diarrhea of less than 24-hour duration with suspected bacterial infections,
without the use of antibiotics. In this study, patients received oral doses of placebo or crofelemer at a dose of 250 mg every 6 hours for 2 days on the background of oral rehydration
therapy only. The use of antibiotics was prohibited in this study. A total of 98 patients were randomized into this study (47 in placebo group and 51 in the crofelemer group). Primary endpoints for
this study were changes in stool weight, frequency, consistency, duration of diarrhea. Secondary endpoints included the assessment of clinical symptoms scored as total of 7-item GI index.
Clinical success was defined as no diarrhea within 48 hours from study start date and treatment failure was defined as no improvement/worsening of symptoms after 24 hours, fever, bloody
stools or dehydration.

Results: 98 patients (51 crofelemer, 47 placebo) were enrolled in the study. 16 patients (4 in the crofelemer group and 12 in the
placebo group) used
antibiotics and were considered as treatment failures and were excluded from the "per protocol efficacy analysis". Groups were similar in age, weight, vital signs, stool frequency, consistency,
dehydration and GI index.

Crofelemer
was well tolerated with no related serious adverse events or concerning changes in lab values. Progression to dehydration and report of fecal incontinence was more common in
placebo group (p<0.05).

Patients in medical institutions such as hospitals often experience diarrhea following infection with Clostridium
difficile, an anaerobic bacillus shed in feces. According to the Centers for Disease Control and Prevention of the U.S. Department of Health & Human Services, any
surface, device, or material (e.g., commodes, bathing tubs, and electronic rectal thermometers) that becomes contaminated with feces may serve as a reservoir for the C.
difficile spores, which are transferred to patients mainly via the hands of healthcare personnel who have touched a contaminated surface or item. We believe development of an
approved formulation of crofelemer for use in C. difficile has the potential to help patients infected with C. difficile leave the hospital sooner,
help keep patients infected with C. difficile out of the
hospital, and aid in controlling C. difficile contagion in institutional settings, which would also represent a significant economic benefit.

Animal Products in Development

Since our July 2017 merger with Napo, as previously announced, Jaguar's human portfolio has been, and continues to be, our core focus. However,
CID is an interesting model for human product performance and is being pursued as our first prescription indication for animal health under MUMS designation (we are also leveraging our MUMS regulatory
package to include exercise induced diarrhea in dogs). We believe there is an important unmet medical need for the treatment of CID in dogs, and that Canalevia is an ideal treatment for this
indication because of its demonstrated novel anti-secretory mechanism of action. We are also continuing initiatives related to Equilevia, our non-prescription, personalized, premium product for total
gut health in equine athletes, and continuing fulfillment support for both Neonorm Foal and Neonorm Calf.

Competition

Human Health

There are several significantly larger pharmaceutical companies competing with us in the gastrointestinal segment. These companies include
Valeant Pharmaceuticals International, Merck & Co., Inc., and Allergan plc as well as smaller pharmaceutical companies.

Diarrhea in adult patients living with HIV/AIDs. We are not aware of any other FDA-approved drugs for the symptomatic relief of diarrhea
in HIV/AIDs
patients. HIV/AIDs patients also use loperimide and over the counter anti-diarrheal remedies such as Mylanta or Kaopectate to treat their diarrhea, but these medicines affect motility and can result
in rebound diarrhea.

Diarrhea predominant irritable bowel syndrome. Two drugs were approved in 2015 for the treatment of diarrhea predominant irritable
bowel syndrome,
Allergan plc's Virbezi and Xifaxan which is marketed by Valeant Pharmaceuticals International. Also, Lotronex was approved by the FDA in 2000 but was withdrawn from the market and later
reintroduced in 2002 under a Risk Management Program. With the exception of Lotronex, the sponsors of Verbezi and Xifaxan employ extensive media and print promotion for the commercialization of these
products. We are seeking a partner to further the clinical development and commercialization of crofelemer for d-IBS. There are currently numerous trials on going for d-IBS.

Pediatric diarrhea. Acute diarrhea in children is commonly treated by a change in diet, oral rehydration therapy and/or antibiotics,
assuming the
cause of the diarrhea is bacterial in nature. Children aged 12 and younger are advised not to use anti-motility drugs (loperamide for example) unless directed to do so by a physician. There are recent
clinical trials for probiotics and zinc sulfate. Other recent anti-diarrheal studies in children include a safety and tolerability study of Fidaxomicin for C difficile associated diarrhea.

Chemotherapy induced diarrhea. We are not aware of any FDA-approved drugs specifically indicated for chemotherapy induced diarrhea. A
recent
Phase IIb trial of elsiglutide for the treatment of chemotherapy induced diarrhea in colorectal cancer patients did not meet statistical significance. Opioids and over the counter drugs are
commonly used to treat chemotherapy induced diarrhea, but these drugs affect motility. Certain tyrosine-kinase inhibitor chemotherapy agents have diarrhea as a significant side effect.

Congenital Diarrheal Disorders and Short Bowel Syndrome. We are not aware of any FDA-approved drugs specifically indicated for
Congenital Diarrheal
Disorders and Short Bowel Syndrome.

Cholera. We are not aware of any FDA-approved drugs specifically indicated as an anti-secretory agent for use to address the
devastating dehydration
in cholera patients.

Irritable Bowel Syndrome (IBS). If we receive regulatory approval for Mytesi for IBS, we expect to compete with major pharmaceutical and
biotechnology companies that operate in the gastrointestinal space, such as Sucampo AG, Takeda Pharmaceuticals, Allergan, Inc., Ironwood Pharmaceuticals, Inc., Synergy
Pharmaceuticals Inc., Sebela Pharmaceuticals, Inc. and Salix Pharmaceuticals. Because Mytesi is approved with chronic safety and several of the other agents have safety concerns, there
is likely to be an opportunity for a polypharmacetuical approach to long-term management of these patients, removing a direct competitive scenario from Mytesi's potential entry to the marketplace and
disease indication.

To
our knowledge, there are currently no FDA-approved anti-secretory products, in particular which act locally in the gut with the chronic safety profile of crofelemer, in development or
on the market. Crofelemer represents a new tool in gastro-intestinal disease management.

Distribution and Marketing Agreements

Napo has agreements in place with BexR, a distributor in Texas, and SmartPharma, a marketing and commercialization advisory firm, for the
distribution, marketing and sale of Mytesi. The agreements compensate these parties with a percentage of net sales, as defined. Payments by Napo to BexR will be a specified percentage of net sales,
ranging in the low double digits but in no instance exceeding 20% of net sales, depending on the period in which the sales occur and the amount of such sales. Payments by Napo to SmartPharma will be a
specified percentage of net sales, ranging in the low double digits but in no instance exceeding 20% of net sales, depending on the amount of such sales. In addition, under certain circumstances, Napo
will be required to pay SmartPharma a termination fee equal to a certain percentage of net sales generated within a specified period after the termination date.

Manufacturing

The plant material used to manufacture is crude plant latex ("CPL") extracted and purified from Croton
lechleri, a widespread and naturally regenerating tree in the rainforest that is managed as part of sustainable harvesting programs. The tree is found in several South American
countries and has been the focus of long-term sustainable harvesting research and development work. Napo's collaborating suppliers obtain CPL and arrange for the shipment of CPL to Napo's third-party
contract manufacturer.

Napo's
third-party contract manufacturer, India-based Glenmark Pharmaceuticals Ltd. (Glenmark), a research-driven, global, integrated pharmaceutical company, is Napo's primary
manufacturer of crofelemer, the active pharmaceutical ingredient in Mytesi. Glenmark processes CPL into crofelemer utilizing a proprietary manufacturing process. The processing occurs at two
FDA-approved Glenmark facilities. Additionally, Napo plans to establish a third processing site, which will be operated by Indena S.p.A., a Milan, Italy-based contract manufacturer dedicated to
the identification, development and production of high-quality active principles derived from plants, for use in the pharmaceutical, health food and personal care industries. Indena has completed the
required technology transfer and has equipment in place for pilot manufacturing.

Canalevia
will be manufactured by the same process used to manufacture the API that was used in the animal safety studies and the human studies in support of the approval of Mytesi. Napo
has also licensed this intellectual property to third parties in connection with its licenses related to the development and commercialization of crofelemer for human use. While we believe these third
parties have developed their own proprietary manufacturing specifications pursuant to their license agreements, such third-party intellectual property is unknown to us, and is not part of the
intellectual property that we intend to use for the manufacture of API in its licensed field of use.

In
May 2014 and June 2014, and as amended in February 2015, we entered into binding memorandums of understanding with Indena S.p.A. to negotiate a definitive commercial supply
agreement for the manufacture of the API in Canalevia and the botanical extract in Neonorm. We have furnished equipment to Indena S.p.A. for use in a facility that will be dedicated to the
manufacture of crofelemer and the botanical extract.

We
have made all contractual payments to Indena as of March 31, 2016. In March 2015, Indena S.p.A. agreed to delay payment of the fees payable by the end of March 2015
until the earlier of April 30,
2015 or the completion of our initial public offering. In July 2015 and December 2015 Indena S.p.A agreed to delay payment of certain fees payable until March 2016. In June 2014, as contemplated by
the memorandums of understanding, we also issued Indena S.p.A. a warrant to acquire 16,666 shares our common stock at an exercise price per share equal to 90% of the initial public offering
price, which expires in June 2019.

In
September 2015 we entered a distribution agreement with Glenmark. With the execution of the agreement, we intend to use Glenmark as our primary manufacturer of crofelemer for animal
health use. Our agreement with Glenmark supplements our previously announced manufacturing agreement with Indena S.p.A for the standardized botanical extract in Neonorm Calf and Neonorm Foal. We
intend to eventually use Indena as an alternative supplier for crofelemer.

In
October 2015, we announced that we signed a crofelemer formulation development and manufacturing contract with Patheon Pharmaceuticals Inc. ("Patheon"), a leading global
provider of drug development and delivery solutions to the global pharmaceutical and biopharma industries. Under the terms of the contract, Patheon will provide enteric-coated crofelemer tablets for
us for use in animals. The tablets were used in our pivotal efficacy trial for Canalevia, which began in the fourth quarter of 2015.

Patheon
is the manufacturer of Mytesi.

We
also plan to enter agreements with third parties for the formulation of the API and botanical extracts into finished products to be used for planned studies and commercialization.

We
plan to ensure that the facilities of our third-party contract manufacturers that will manufacture our API and botanical extract, as well as formulate our finished products, comply
with cGMP and other relevant manufacturing requirements.

Proprietary Library of Medicinal Plants

We possess a proprietary library of more than 2,300 medicinal plants.

Intellectual Property

Trademarks

We plan to market all of our products under a trademark or trademarks we select and we will own all rights, title and interest, including all
goodwill, associated with such trademarks. Mytesi is a registered trademark owned by Napo.

On September 19, 2017 (the "Transfer Date"), Napo entered into the Termination, Asset Transfer and Transition Agreement (the "Glenmark
Transition Agreement") with Glenmark. The Glenmark Transition Agreement supersedes the Glenmark Collaboration Agreement and returns to Napo certain rights which Napo licensed to Glenmark pursuant to
the Glenmark Collaboration Agreement related to the development and commercialization of crofelemer for certain specified human indications in India and 140 other countries largely in developing
regions (the "Transferred Assets").

As
a result of the execution of the Glenmark Transition Agreement, we, through Napo, now control commercial rights for Mytesi for all indications, territories and patient populations
globally, and also hold commercial rights to the existing regulatory approvals for crofelemer in Brazil, Ecuador, Zimbabwe and Botswana.

In
consideration for Glenmark's assignment and transfer of the Transferred Assets to Napo, Napo agreed to pay Glenmark in cash, within 45 days after receipt by Napo, 25% of any
payment that Napo receives from a third party to whom Napo grants a license or sublicense or with whom Napo partners in respect of, or sells or otherwise transfers any of the Transferred Assets,
subject to certain limitations, until Glenmark has received a total of $7 million. As additional consideration for the assignment and transfer of the Transferred Assets, Napo agreed
(i) to enter into, within 90 days after the Transfer Date, a manufacturing and supply agreement with Glenmark for crofelemer, which will be manufactured at either or both of Glenmark's
facilities in India and (ii) to transfer and assign to Glenmark all right, title and interest in and to certain required dedicated equipment used to manufacture crofelemer located at Glenmark's
Ankleshwar facility, subject to certain limitations.

License Agreement with Elanco US Inc.

As we announced on January 31, 2017, we signed an agreement with Elanco US Inc. ("Elanco"), a subsidiary of Eli Lilly and Company,
to license, develop, co-promote, and commercialize Canalevia, our drug product candidate under investigation for treatment of acute diarrhea and CID in dogs. The agreement granted Elanco exclusive
global rights to Canalevia for use in companion animals. As we announced on November 1, 2017, we received notice from Elanco of its decision to terminate the License, Development Co-Promotion
and Commercialization Agreement by giving Jaguar 90 days written notice. Pursuant to the terms of the agreement, termination of the agreement became effective January 30, 2018,
90 days after the date of the notice. On the effective date of termination of the agreement, all licenses granted to Elanco by Jaguar under the agreement were revoked and the rights granted
thereunder reverted back to Jaguar.

Patent Portfolio

Napo

Napo owns a portfolio of patents and patent applications covering formulations of and methods of treatment with proanthocyanidin polymers
isolated from Croton spp or Calophyllum spp., including Mytesi (crofelemer). The patent family related
to International Patent publication WO1998/16111 relates to enteric protected formulations of proanthocyanidin polymers isolated from Croton spp or Calophyllum
spp., including crofelemer, and methods of treating watery diarrhea using these enteric protected formulation. There are two U.S. patents in
this family, including, US 7,323,195, which has a term until at least June 7, 2018, and US 7,341,744, which has a term until at least June 23, 2019. Napo has elected to extend the term
of US 7,341,744 under 35 U.S.C. 156, and the United States Patent and Trademark Office has issued a Notice of Final Determination that the patent term extension for US 7,341,744 is 1075 days.

Based
upon the June 23, 2019 expiration date, the patent would be extended to June 2, 2022, to account for regulatory delay in obtaining human marketing approval for crofelemer.

Napo
additionally owns a family of patents arising from International Patent Application Publication WO2012058664 that cover methods of treating HIV associated diarrhea and HAART
associated diarrhea with proanthocyanidin polymers isolated from Croton spp or Calophyllum spp.,
including crofelemer. In the U.S., there are two issued patents, US 8,962,680 and US 9,585,868, both of which expire October 31, 2031. Outside the U.S., patent protection for methods of
treating HIV associated diarrhea has been obtained in Australia, Europe, Hong Kong, Japan, Kenya, Mexico, Russia, Ukraine, South Africa and Zimbabwe, with expiration dates of October 31, 2031,
and Napo has pending applications in Brazil, Canada, China, India, Japan, Mexico, and Malaysia. Napo also has patent families related to methods of treating diarrhea predominant irritable bowel
syndrome, constipation predominant irritable bowel syndrome, and inflammatory bowel disease, familial adenomatous polyposis and colon cancer, with proanthocyanidin polymers isolated from Croton spp or
Calophyllum spp., including crofelemer. In particular, for diarrhea predominant irritable
bowel syndrome, Napo has 1 issued US patent, which expires February 9, 2027, and 1 pending application, issued patents in Australia, Europe, Japan, South Korea, Mexico, New Zealand, Singapore,
and Taiwan and pending applications in Bangladesh, Bolivia, Canada, Chile, Gulf States, Mexico, Panama, Peru, Paraguay, Thailand, and Venezuela, all of which are estimated to expire April 30,
2027; for constipation predominant irritable bowel syndrome, Napo has 3 issued US patents, with terms of at least April 30, 2027, patents in Australia, Canada, Europe, Mexico, New Zealand,
Singapore and a pending application in India, all of which are estimated to expire April 30, 2027; and for inflammatory bowel disease, familial adenomatous polyposis and/or colon cancer, Napo
has 1 issued US patent, which has an expiration date of October 9, 2029 and 1 pending application, issued patents in Australia, Europe and a pending application in Canada, which have estimated
expiration dates of April 30, 2027.

Napo
also co-owns with Glenmark, issued patents in India, South Africa and Eurasia patents that expire August 24, 2030, and cover a method of manufacturing with proanthocyanidin
polymers isolated from Croton spp or Calophyllum spp., including crofelemer). Napo holds two US patents
covering a formulation of NP 500 (nordihydroguiaretic acid (NDGA)) and its use in treating a metabolic disorder that have terms until April 23, 2031 Napo has filed a US non-provisional
application for the treatment of chemotherapy-induced diarrhea (CID) with crofelemer and two US provisional applications on other human indications.

Jaguar

We have exclusive rights in the veterinary field to an international patent family related to International Patent Application WO1998/16111 as
set forth above in the disclosure of the Napo patent portfolio. The patents in this family are directed to enteric protected formulations of proanthocyanidin polymers isolated from Croton spp or
Calophyllum spp. (such as crofelemer and Neonorm), and methods of treating watery diarrhea
using the enteric protected formulations for both human and veterinary uses. As such, the patents of this family cover certain formulations of crofelemer, including Canalevia, as well as the
standardized botanical extract in Neonorm, and methods of treating diarrhea using these formulations.

Certain
Napo patents and patent applications, which cover both human and veterinary uses, were previously licensed by Napo to Salix for certain fields of human use. On March 4,
2016, Napo and Salix settled litigation and all rights to crofelemer and Mytesi (formerly known as Fulyzaq) were returned to Napo and the collaboration agreement between Salix and Napo (the "Salix
Collaboration Agreement"), was terminated. Napo has the responsibility to file, prosecute and maintain the Napo Patents. There are two issued Napo Patents in the United States that cover,
collectively, enteric protected formulations of proanthocyanidin polymers isolated from Croton spp. and methods of treating watery diarrhea using the
enteric protected formulations for both human and veterinary uses.

We
have filed and have currently three applications pending under the PCT, and seven U.S. non provisional patent applications relating to veterinary uses of Croton proanthocyanidin polymer compositions,
including crofelemer, Neonorm and Canalevia, and product combinations under development. These
applications are directed to treatment of watery diarrhea in newborn and young animals, including methods of improving mortality and weight gain in newborn animals, treatment of stress induced
diarrhea in animals, and treatment of watery diarrhea caused by salmonella in animals. These applications also focus on the treatment of diarrhea in companion animals such as dogs and cats. In
addition, an application has been submitted for the treatment of ulcers and related symptoms in
animals with an emphasis on ulcers in horses. An application has also been filed on a prebiotic effect of crofelemer in bovine and other animal species based on research findings that indicate
a prebiotic enhancement of the gut bacteria in animals. One other patent application has been filed combining crofelemer with rifaximin, a non absorbed antibiotic for the treatment of bacteria induced
diarrhea in multiple animal species. Applications have been filed relating to treatment of porcine epidemic virus in piglets and treatment of diarrhea in livestock with a formulation that is not
enteric protected. Patents that may issue based upon these applications should have terms that extend until at least May 2035.

Government Regulation

Human Health Business

The FDA and comparable regulatory authorities in state and local jurisdictions and in other countries impose substantial and burdensome
requirements upon companies involved in the clinical development, manufacture, marketing and distribution of prescription drugs such as those Napo is developing. These agencies and other federal,
state and local entities regulate, among other things, the research and development, testing, manufacture, quality control, safety, effectiveness, labeling, storage, record keeping, approval,
advertising and promotion, distribution, post-approval monitoring and reporting, sampling and export and import of Napo's drug product candidates. To comply with the regulatory requirements in each of
the jurisdictions in which Napo is seeking to market and subsequently sell its prescription products, Napo is establishing processes and resources to provide oversight of the development, approval
processes and launch of its products and to position those products in order to gain market share.

U.S. Government Regulation

In the United States, the FDA approves and regulates drugs under the Federal Food, Drug, and Cosmetic Act ("FDCA"), and its implementing
regulations.

The
process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign statutes and regulations requires the expenditure of
substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an
applicant to a variety of administrative or judicial sanctions, such as the FDA's refusal to approve pending NDAs, withdrawal of an approval, imposition of a clinical hold, issuance of warning
letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or
criminal penalties.

The
process required by the FDA before a drug may be marketed in the United States generally involves the following:



completion of pre-clinical laboratory tests, animal studies and formulation studies in compliance with the FDA's good laboratory practice, or
GLP, regulations;



submission to the FDA of an investigational new drug application, or IND, which must become approved before human clinical trials may begin;

approval by an institutional review board, or IRB, of the study protocol and informed consent forms for the clinical site before each trial may
be initiated. Multiple sites may necessitate the involvement of multiple IRBs and submissions;



performance of adequate and well-controlled human clinical trials in accordance with good clinical practice, or GCP, requirements to establish
the safety and efficacy of the proposed drug product for each indication;



submission to the FDA of an NDA which would include the study reports of the clinical trials, chemistry and manufacturing of the active
pharmaceutical ingredient and the final dosage form as well as other required sections to be included in the NDA;



satisfactory completion of an FDA advisory committee review, if applicable;



satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product is produced to assess compliance
with current good manufacturing practice, or cGMP, requirements and to assure that the facilities, methods and controls are adequate to preserve the drug's identity, strength, quality and purity; and



FDA review and approval of the NDA.

Pre-clinical Studies

Pre-clinical studies include laboratory evaluation of the drug product's chemistry, toxicity and formulation, as well as animal studies to
assess potential safety and efficacy. An IND sponsor must submit the results of the pre-clinical tests, together with manufacturing information, analytical data and any available clinical data or
literature, among other things, to the FDA as part of an IND. Some pre-clinical testing may continue even after the IND is submitted. An IND automatically becomes effective 30 days after
receipt by the FDA, unless before that time the FDA raises concerns or questions related to one or more proposed clinical trials and places the clinical trial on a clinical hold. In such a case, the
IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials to commence.

Clinical Trials

Clinical trials involve the administration of the investigational new drug to human subjects pursuant to a clinical protocol, under the
supervision of qualified investigators in accordance with GCP requirements, which include the requirement that all research subjects provide their informed consent in writing for their participation
in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives or endpoints of the trial, the parameters to be used in monitoring safety, and the
effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA under the IND. In addition, an IRB at each institution
participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution. Information about certain clinical trials must be submitted within
specific timeframes to the National Institutes of Health, or NIH, for public dissemination on their www.clinicaltrials.govwebsite.

Human
clinical trials are typically conducted in three sequential phases, which may overlap or be combined:



Phase 1: The drug is initially introduced into healthy human subjects or patients with the target disease or condition and tested for
safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an early indication of its effectiveness depending on the endpoints set forth in the protocol.

Phase 2: The drug is administered to a limited patient population to identify possible adverse effects and safety risks, to
preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage.



Phase 3: The drug is administered to an expanded patient population, generally at geographically dispersed clinical trial sites, in
well-controlled clinical trials to generate enough data to statistically evaluate the efficacy and safety of the product for approval, to establish the overall risk-benefit profile of the product, and
to provide adequate information for the labeling of the product.

Progress
reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse events occur. Phase 1,
Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, or at all. Furthermore, the FDA or the sponsor may suspend or terminate a clinical
trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical
trial at its institution if the clinical trial is not being conducted in accordance with the IRB's requirements or if the drug has been associated with unexpected serious harm to patients.

Special Protocol Assessment

The special protocol assessment, or SPA, process is designed to facilitate the FDA's review and approval of drugs by allowing the FDA to
evaluate issues related to the adequacy of certain clinical trials, including Phase 3 clinical trials that can form the primary basis for a drug product's efficacy claim in an NDA. Upon
specific request by a clinical trial sponsor, the FDA will evaluate the protocol and respond to a sponsor's questions regarding, among other things, primary efficacy endpoints, trial conduct and data
analysis, within 45 days of receipt of the request.

The
FDA ultimately assesses whether the protocol design and planned analysis of the trial are acceptable to support regulatory approval of the product candidate with respect to
effectiveness of the indication studied. All agreements and disagreements between the FDA and the sponsor regarding an SPA must be clearly documented in an SPA letter or the minutes of a meeting
between the sponsor and the FDA.

Even
if the FDA agrees to the design, execution and analyses proposed in protocols reviewed under the SPA process, the FDA may revoke or alter its agreement under the following
circumstances:



public health concerns emerge that were unrecognized at the time of the protocol assessment;



the director of the review division determines that a substantial scientific issue essential to determining safety or efficacy has been
identified after testing has begun;



a sponsor fails to follow a protocol that was agreed upon with the FDA; or



the relevant data, assumptions, or information provided by the sponsor in a request for SPA change, are found to be false statements or
misstatements, or are found to omit relevant facts.

A
documented SPA may be modified, and such modification will be deemed binding on the FDA review division, except under the circumstances described above, if FDA and the sponsor agree in
writing to modify the protocol and such modification is intended to improve the study.

Marketing Approval

Assuming successful completion of the required clinical testing, the results of the pre-clinical studies and clinical trials, together with
detailed information relating to the product's chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA as part of a NDA requesting approval to market the
product for one or more indications. In most cases, the submission of a NDA is subject to a substantial application user fee. Under the Prescription Drug User Fee Act

("PDUFA"),
guidelines that are currently in effect, the FDA has a goal of ten months from the date of "filing" of a standard NDA for a new molecular entity to review and act on the submission. This
review typically takes twelve months from the date the NDA is submitted to FDA because the FDA has approximately two months to make a "filing" decision.

In
addition, under the Pediatric Research Equity Act of 2003 ("PREA"), as amended and reauthorized, certain NDAs or supplements to an NDA must contain data that are adequate to assess
the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations; this would include information which supports dosing and administration for each
pediatric subpopulation for which the product is safe and effective. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data
until after approval of the product for use in adults or full or partial waivers from the pediatric data requirements.

The
FDA may also require submission of a risk evaluation and mitigation strategy, or REMS, plan to ensure that the benefits of the drug outweigh its risks. The REMS plan could include
medication guides, physician communication plans, assessment plans, and/or elements to assure safe use, such as restricted distribution methods, patient registries, or other risk minimization tools.

The
FDA may also require other information as part of the NDA filing such as an environmental impact statement. The FDA can waive some or delay compliance with some of these
requirements.

The
FDA conducts a preliminary review of all NDAs within the first 60 days after submission, before accepting them for filing, to determine whether they are sufficiently complete
to permit substantive review. The FDA may request additional information rather than accept a NDA for filing. In this event, the application must be resubmitted with the additional information. The
resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA reviews a NDA
to determine, among other things, whether the drug is safe and effective and whether the facility in which it is manufactured, processed, packaged or held meets standards designed to assure the
product's continued safety, quality and purity.

The
FDA may refer an application for a novel drug to an advisory committee. An advisory committee is a panel of independent experts, including clinicians and other scientific experts,
that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee,
but it considers such recommendations carefully when making decisions.

Before
approving an NDA, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that
the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before
approving a NDA, the FDA may inspect one or more clinical trial sites to assure compliance with GCP requirements.

After
evaluating the NDA and all related information, including the advisory committee recommendation, if any, and inspection reports regarding the manufacturing facilities and clinical
trial sites, the FDA may issue an approval letter, or, in some cases, a complete response letter. A complete response letter must contain a statement of specific items that prevent the FDA from
approving the application and will also contain conditions that must be met in order to secure final approval of the NDA and may require additional clinical or pre-clinical testing in order for FDA to
reconsider the application. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. If and when
those conditions have been met to the FDA's satisfaction, the FDA will typically issue an approval letter. An approval letter authorizes commercial marketing of the drug with specific prescribing
information for specific indications.

Even
if the FDA approves a product, it may limit the approved indications for use of the product, require that contraindications, warnings or precautions be included in the product
labeling, require that

post-approval
studies, Phase 4 clinical trials, be conducted to further assess a drug's safety after approval, require testing and surveillance programs to monitor the product after
commercialization, or impose other conditions, including distribution and use restrictions or other risk management mechanisms under a REMS, which can materially affect the potential market and
profitability of the product. The FDA may prevent or limit further marketing of a product based on the results of post-marketing studies or surveillance programs. After approval, some types of changes
to the approved product, such as adding new indications, manufacturing changes, and additional labeling claims, are subject to further testing requirements and FDA review and approval.

Post-Approval Requirements

Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among
other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and
reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims are subject to prior FDA review and
approval. New secondary indications must be supported by clinical trials or data. There also are continuing, annual user fee requirements for any marketed products and the establishments at which such
products are manufactured, as well as new application fees for supplemental applications with clinical data.

The
FDA may impose a number of post-approval requirements as a condition of approval of an NDA. For example, the FDA may require post-marketing testing, including Phase 4 clinical
trials, and surveillance to further assess and monitor the product's safety and effectiveness after commercialization.

In
addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state
agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly regulated and
often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP requirements and impose reporting and documentation
requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production
and quality control to maintain cGMP compliance.

Once
an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches
the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with
regulatory requirements, may result in mandatory revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or
imposition of distribution or other restrictions under a REMS program. Other potential consequences include, include, but are not limited to:



restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;



fines, warning letters or holds on post-approval clinical trials;



refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product approvals;



product seizure or detention, or refusal to permit the import or export of products; or



injunctions or the imposition of civil or criminal penalties.

The
FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in
accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations

prohibiting
the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability. In addition, the FDA regulates the purity
and or consistency of the approved product. Products, if deemed adulterated can lead to serious consequences as set forth above as well as civil and criminal penalties.

Foreign Government Regulation

To the extent that any of Napo's product candidates, once approved, are sold in a foreign country, Napo may be subject to similar foreign laws
and regulations, which may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws and implementation of corporate compliance programs
and reporting of payments or other transfers of value to healthcare professionals.

In
order to market Napo's future products in the EEA (which is comprised of the 28 Member States of the EU plus Norway, Iceland and Liechtenstein) and many other foreign jurisdictions, a
sponsor must obtain separate regulatory approvals. More concretely, in the EEA, medicinal products can only be commercialized after obtaining a Marketing Authorization, or MA. There are two types of
marketing authorizations:



the Community MA, which is issued by the European Commission through the Centralized Procedure, based on the opinion of the Committee for
Medicinal Products for Human Use of the European Medicines Agency, or EMA, and which is valid throughout the entire territory of the EEA. The Centralized Procedure is mandatory for certain types of
products, such as biotechnology medicinal products, orphan medicinal products and medicinal products indicated for the treatment of AIDS, cancer, neurodegenerative disorders, diabetes, auto-immune and
viral diseases. The Centralized Procedure is optional for products containing a new active substance not yet authorized in the EEA, or for products that constitute a significant therapeutic,
scientific or technical innovation or which are in the interest of public health in the EU; and



National MAs, which are issued by the competent authorities of the Member States of the EEA and only cover their respective territory, are
available for products not falling within the mandatory scope of the Centralized Procedure. Where a product has already been authorized for marketing in a Member State of the EEA, this National MA can
be recognized in another Member State through the Mutual Recognition Procedure. If the product has not received a National MA in any Member State at the time of application, it can be approved
simultaneously in various Member States through the Decentralized Procedure.

Under
the above described procedures, before granting the MA, the EMA or the competent authorities of the Member States of the EEA make an assessment of the risk-benefit balance of the
product on the basis of scientific criteria concerning its quality, safety and efficacy.

In
the EEA, new products authorized for marketing, or reference products, qualify for eight years of data exclusivity and an additional two years of market exclusivity upon marketing
authorization. The data exclusivity period prevents generic or biosimilar applicants from relying on the pre-clinical and clinical trial data contained in the dossier of the reference product when
applying for a generic or biosimilar marketing authorization in the EU during a period of eight years from the date on which the reference product was first authorized in the EU. The market
exclusivity period prevents a successful generic or biosimilar applicant from commercializing its product in the EU until 10 years have elapsed from the initial authorization of the reference
product in the EU. The 10-year market exclusivity period can be extended to a maximum of eleven years if, during the first eight years of those 10 years, the marketing authorization holder
obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in
comparison with existing therapies.

In
the EEA, marketing authorization applications for new medicinal products not authorized have to include the results of studies conducted in the pediatric population, in compliance
with a pediatric investigation plan, or PIP, agreed with the EMA's Pediatric Committee ("PDCO"). The PIP sets out the timing and measures proposed to generate data to support a pediatric indication of
the drug for which marketing authorization is being sought. The PDCO can grant a deferral of the obligation to implement some or all of the measures of the PIP until there are sufficient data to
demonstrate the efficacy and safety of the product in adults. Further, the obligation to provide pediatric clinical trial data can be waived by the PDCO when these data is not needed or appropriate
because the product is likely to be ineffective or unsafe in children, the disease or condition for which the product is intended occurs only in adult populations, or when the product does not
represent a significant therapeutic benefit over existing treatments for pediatric patients. Once the marketing authorization is obtained in all Member States of the EU and study results are included
in the product information, even when negative, the product is eligible for six months' supplementary protection certificate extension. For orphan-designated medicinal products, the 10-year period of
market exclusivity is extended to 12 years.

Other U.S. Healthcare Laws

In addition to FDA restrictions on marketing of pharmaceutical and biological products, other U.S. federal and state healthcare regulatory laws
restrict business practices in the pharmaceutical industry, which include, but are not limited to, state and federal anti-kickback, false claims, data privacy and security and physician payment and
drug pricing transparency laws.

The
U.S. federal Anti-Kickback Statute prohibits, among other things, any person or entity from knowingly and willfully offering, paying, soliciting, receiving or providing any
remuneration, directly or indirectly, overtly or covertly, to induce or in return for purchasing, leasing, ordering, or arranging for or recommending the purchase, lease, or order of any good,
facility, item or service reimbursable, in whole or in part, under Medicare, Medicaid or other federal healthcare programs. The term "remuneration" has been broadly interpreted to include anything of
value. The Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers, formulary managers and beneficiaries on
the other. Although there are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly.
Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases, or recommendations may be subject to scrutiny if they do not meet the requirements of a
statutory or regulatory exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se
illegal under the U.S. federal Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a
cumulative review of all its facts and circumstances. Several courts have interpreted the statute's intent requirement to mean that if any one purpose of an arrangement involving remuneration is to
induce referrals of federal healthcare covered business, the statute has been violated.

Additionally,
the intent standard under the U.S. federal Anti-Kickback Statute was amended by the Patient Protection and Affordable Care Act, as amended by the Health Care and Education
Reconciliation Act of 2010, or collectively, the ACA, to a stricter standard such that a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in
order to have committed a violation. In addition, the ACA codified case law that a claim including items or services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a
false or fraudulent claim for purposes of the federal civil False Claims Act. The majority of states also have anti-kickback laws, which establish similar prohibitions and in some cases may apply to
items or services reimbursed by any third-party payor, including commercial insurers.

The
federal false claims and civil monetary penalties laws, including the civil False Claims Act, prohibit any person or entity from, among other things, knowingly presenting, or causing
to be presented, a

false,
fictitious or fraudulent claim for payment to, or approval by, the federal government, knowingly making, using, or causing to be made or used a false record or statement material to a false or
fraudulent claim to the federal government, or from knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the U.S. federal government. A claim includes "any
request or demand" for money or property presented to the U.S. government. Actions under the civil False Claims Act may be brought by the Attorney General or as a qui tam action by a private
individual in the name of the government. Violations of the civil False Claims Act can result in very significant monetary penalties and treble damages. Several pharmaceutical and other healthcare
companies have been prosecuted under these laws for, among other things, allegedly providing free product to customers with the expectation that the customers would bill federal programs for the
product. Other companies have been prosecuted for causing false claims to be submitted because of the companies' marketing of products for unapproved, or off-label, uses. In addition, the civil
monetary penalties statute imposes penalties against any person who is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know
is for an item or service that was not provided as claimed or is false or fraudulent. Many states also have similar fraud and abuse statutes or regulations that apply to items and services reimbursed
under Medicaid and other state programs, or, in several states, apply regardless of the payor.

Violations
of fraud and abuse laws, including federal and state anti-kickback and false claims laws, may be punishable by criminal and civil sanctions, including fines and civil monetary
penalties, the possibility of exclusion from federal healthcare programs (including Medicare and Medicaid), disgorgement and corporate integrity agreements, which impose, among other things, rigorous
operational and monitoring requirements on companies. Similar sanctions and penalties, as well as imprisonment, also can be
imposed upon executive officers and employees of such companies. Given the significant size of actual and potential settlements, it is expected that the government authorities will continue to devote
substantial resources to investigating healthcare providers' and manufacturers' compliance with applicable fraud and abuse laws.

The
federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, created additional federal criminal statutes that prohibit, among other actions, knowingly and
willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a
healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense and knowingly and willfully falsifying, concealing or covering up a material fact or making any
materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the U.S. federal Anti-Kickback Statute, the
ACA broadened the reach of certain criminal healthcare fraud statutes created under HIPAA by amending the intent requirement such that a person or entity does not need to have actual knowledge of the
statute or specific intent to violate it in order to have committed a violation.

In
addition, there has been a recent trend of increased federal and state regulation of payments made to physicians and certain other healthcare providers. The ACA imposed, among other
things, new annual reporting requirements through the Physician Payments Sunshine Act for covered manufacturers for certain payments and "transfers of value" provided to physicians and teaching
hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Failure to submit timely, accurately and completely the required information for all
payments, transfers of value and ownership or investment interests may result in civil monetary penalties of up to an aggregate of $150,000 per year and up to an aggregate of $1 million per
year for "knowing failures." Covered manufacturers must submit reports by the 90th day of each subsequent calendar year. In addition, certain states require implementation of compliance
programs and compliance with the pharmaceutical industry's voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, impose restrictions on marketing
practices and/or tracking and reporting of gifts, compensation and other remuneration or items of value provided to physicians and other healthcare professionals and entities.

Napo
may also be subject to data privacy and security regulation by both the federal government and the states in which Napo conducts its business. HIPAA, as amended by the Health
Information Technology for Economic and Clinical Health Act, or HITECH, and their respective implementing regulations, including the Final HIPAA Omnibus Rule published on January 25, 2013,
impose specified requirements relating to the privacy, security and transmission of individually identifiable health information held by covered entities and their business associates. Among other
things, HITECH made HIPAA's security standards directly applicable to "business associates," defined as independent contractors or agents of covered entities that create, receive, maintain or transmit
protected health information in connection with providing a service for or on behalf of a covered entity. HITECH also
increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil
actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney's fees and costs associated with pursuing federal civil actions. In addition, state laws govern
the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same requirements, thus complicating compliance
efforts.

Coverage and Reimbursement

Significant uncertainty exists as to the coverage and reimbursement status of any pharmaceutical products for which Napo obtains regulatory
approval. In the United States and markets in other countries, patients who are prescribed treatments for their conditions and providers performing the prescribed services generally rely on
third-party payors to reimburse all or part of the associated healthcare costs. Patients are unlikely to use Napo's products unless coverage is provided and reimbursement is adequate to cover a
significant portion of the cost of Napo's products. Sales of any products for which Napo receives regulatory approval for commercial sale will therefore depend, in part, on the availability of
coverage and adequate reimbursement from third-party payors. Third-party payors include government authorities, managed care plans, private health insurers and other organizations. In the United
States, the process for determining whether a third-party payor will provide coverage for a pharmaceutical or biological product typically is separate from the process for setting the price of such
product or for establishing the reimbursement rate that the payor will pay for the product once coverage is approved. Third-party payors may limit coverage to specific products on an approved list,
also known as a formulary, which might not include all of the FDA-approved products for a particular indication. A decision by a third-party payor not to cover Napo's product candidates could reduce
physician utilization of Napo's products once approved and have a material adverse effect on Napo's sales, results of operations and financial condition. Moreover, a third-party payor's decision to
provide coverage for a pharmaceutical or biological product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable Napo
to maintain price levels sufficient to realize an appropriate return on Napo's investment in product development. Additionally, coverage and reimbursement for products can differ significantly from
payor to payor. One third-party payor's decision to cover a particular medical product or service does not ensure that other payors will also provide coverage for the medical product or service, or
will provide coverage at an adequate reimbursement rate. As a result, the coverage determination process will require Napo to provide scientific and clinical support for the use of Napo's products to
each payor separately and will be a time-consuming process.

In
the EEA, governments influence the price of products through their pricing and reimbursement rules and control of national health care systems that fund a large part of the cost of
those products to consumers. Some jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed to by the government. To
obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost effectiveness of a particular product candidate to currently
available therapies. Other member states allow companies to fix their own prices for medicines, but monitor and control company profits. The downward pressure on health care costs in general,
particularly prescription products, has become very

intense.
As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross border imports from low-priced markets exert a commercial
pressure on pricing within a country.

The
containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of pharmaceutical or biological products have been a focus in this
effort. Third-party payors are increasingly challenging the prices charged for medical products and services, examining the medical necessity and reviewing the cost-effectiveness of pharmaceutical or
biological products, medical devices and medical services, in addition to questioning safety and efficacy. If these third-party payors do not consider Napo's products to be cost-effective compared to
other available therapies, they may not cover Napo's products after FDA approval or, if they do, the level of payment may not be sufficient to allow Napo to sell its products at a profit.

Healthcare Reform

A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and other third-party payors have
attempted to control costs by limiting coverage and the amount of reimbursement for particular medical products. For example, in March 2010, the ACA was enacted, which, among other things, increased
the minimum Medicaid rebates owed by most manufacturers under the Medicaid Drug Rebate Program; introduced a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate
Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected; extended the Medicaid Drug Rebate Program to utilization of prescriptions of individuals enrolled in
Medicaid managed care plans; imposed mandatory discounts for certain Medicare Part D beneficiaries as a condition for manufacturers' outpatient drugs coverage under Medicare Part D;
subjected drug manufacturers to new annual fees based on pharmaceutical companies' share of sales to federal healthcare programs; created a new Patient Centered Outcomes Research Institute to oversee,
identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; creation of the Independent Payment Advisory Board, once empaneled, will have
authority to recommend certain changes to the Medicare program that could result in reduced payments for prescription drugs; and establishment of a Center for Medicare Innovation at the CMS to test
innovative payment and service delivery models to lower Medicare and Medicaid spending. Since its enactment, the U.S. federal government has delayed or suspended implementation of certain provisions
of the ACA. In addition, there have been judicial and Congressional challenges to certain aspects of the ACA, and Napo expects there will be additional challenges and amendments to the ACA in the
future. For example, in January 2017, the U.S. House of Representatives and Senate passed legislation, which, if signed into law, would
repeal certain aspects of the ACA. In addition, Congress could consider subsequent legislation to replace those elements of the ACA if so repealed.

Napo
expects that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and lower reimbursement, and
additional downward pressure on the price that Napo receives for any approved product. Any reduction in reimbursement from Medicare or other government-funded programs may result in a similar
reduction in payments from private payors. Moreover, recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products. The
implementation of cost containment measures or other healthcare reforms may prevent Napo from being able to generate revenue, attain profitability or commercialize Napo's drugs.

Additionally,
on August 2, 2011, the Budget Control Act of 2011 created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with
recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation's automatic reduction to
several government programs. This included aggregate reductions of Medicare payments to providers of 2% per fiscal year, which went

into
effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will stay in effect through 2025 unless additional action is taken by Congress. On January 2,
2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers, including hospitals, imaging centers and
cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. More recently, there has been heightened
governmental scrutiny recently over the manner in which manufacturers set prices for their marketed products, which have resulted in several recent Congressional inquiries and proposed bills designed
to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies
for pharmaceutical products.

Napo
expects that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay
for healthcare products and services, which could result in reduced demand for Napo's products once approved or additional pricing pressures.

Animal Health Business

The development, approval and sale of animal health products are governed by the laws and regulations of each country in which we intend to seek
approval, where necessary, to market and subsequently sell our prescription drug and non-drug products. To comply with these regulatory requirements, we are establishing processes and resources to
provide oversight of the development, approval processes and launch of its products and to position those products in order to gain market share in each respective market.

United States

Certain federal regulatory agencies are charged with oversight and regulatory authority of animal health products in the United States. These
agencies, depending on the product and its intended use may include the FDA, the USDA and the Environmental Protection Agency. In addition, the Drug Enforcement Administration regulates animal
therapeutics that are classified as controlled substances. In addition, the Federal Trade Commission may in the case of non-drug products, regulate the marketing and advertising claims being made.

The
approval of prescription drugs intended for animal use is regulated by the FDA's Center for Veterinary Medicine ("CVM"). The CVM consists of six offices that work together to, in
part, approve new drugs for commercialization and thereafter monitor those commercialized drugs once in the market. The Office of New Animal Drug Evaluation ("ONADE"), is the lead office for reviewing
novel drug candidates. We, as the sponsor of a novel drug candidate, commence the development and approval process by initiating communication with the ONADE and opening an INAD file. As part of this
process, we will also schedule a discussion of the novel drug's development plan in order to obtain agreement from the CVM for the number, type and design of studies needed to obtain FDA
approval of the novel drug.

As
required by the FDA, new animal drug products must obtain marketing approval through the NADA process. Under the Administrative New Animal Drug Application, or Administrative NADA,
process, a sponsor can engage in a phased submission of the required technical sections of an NADA, known as a rolling NADA, as opposed to submitting the entire application at once with a standard
NADA. The requirements for all NADAs are the same regardless of whether a sponsor chooses the rolling NADA or the standard NADA submission. Under the phased review, once all technical sections have
been submitted and reviewed, the sponsor submits an Administrative NADA to reflect that all technical sections of the NADA have been submitted and reviewed, each such technical section meets the
requirements for approval and the CVM has issued technical section complete letters for each technical section. The phased review and Administrative NADA allow a drug sponsor to engage with
the FDA as to each technical section to ensure that each section meets all requirements prior to submission of the application for approval. Phasing of NADA submissions is a voluntary process.

Once the tasks set forth in the development plan have been completed, including the clinical work as well as the chemistry and manufacturing work (feasibility,
validation and stability of the drug inclusive), We, as the novel drug sponsor will need to provide to the FDA through the application process, information as to the safety and efficacy of the drug
candidate, and, if needed, human food safety studies. These food safety studies are only required for drugs intended for use in production animals, and we currently have no plans to develop drugs for
production animals. Additionally, the application will contain a module on CMC, which describes the plan for manufacturing the drug including the API, the final formulation, where it will be made, how
it will be made, how the drug will be packaged, how it can be stored, the conditions required for storage and how long it can be stored before expiry. A major part of the CMC section is the analysis
we employ to ensure that the manufactured drug is of a high quality, is consistently manufactured under cGMP and is stable. Other significant components to the application we have to complete before
receiving drug approval includes a draft label that will list specific information such as dosing information, intended use, warnings, directions for use, and other information as required by the
regulations. The package insert that will contain information on studies, warnings, drug interactions, intended use and dosing is considered part of the label in addition to that
which is adhering to the container itself. The CVM ensures that the labeling provides all the necessary information to use the drug safely and effectively, and that it clearly discloses the risks
associated with the drug.

MUMS Designation

The Minor Use and Minor Species Animal Health Act ("MUMS Act"), became effective in August 2004. The purpose of the MUMS Act was twofold: first,
to encourage the development and availability of more animal drugs that are intended to be used in a major species defined as dogs, cats, cattle, horses, chickens, turkeys and pigs to treat diseases
which occur infrequently or in limited geographic areas, therefore having an impact on a smaller number of animals on a yearly basis; and second, to encourage the development and availability of
animal drugs for use in minor species (defined as all animals other than humans that are not one of the major species). The drug sponsor may seek conditional approval of the drug product provided the
Office of Minor Use Minor Species ("OMUMS") acknowledges that the intended use fits within a small number of animals treated per annum. A drug does not have to be designated to be eligible for
conditional approval, however if OMUMS designates a MUMS drug, certain incentives and exclusivities are available to the sponsor. The MUMS designation is modeled on the orphan drug designation for
human drug development and has certain financial incentives available to encourage MUMS drug development such as the availability of grants to help with the cost of the MUMS drug development. Also,
drug developers of MUMS drugs are eligible to apply for a waiver of the user fees once the MUMS designation has been given by OMUMS. We believe that we qualify for MUMS designation for Canalevia as a
minor use in a major species because the estimated total number of dogs in the United States affected by CID is less than 70,000. We also believe that Canalevia will qualify for MUMS designation for
EID because, in our estimate, the total number of dogs in the United States affected by EID on an annual basis is less than 70,000. To obtain conditional approval of a MUMS drug, the company must
submit CMC and safety data similar to that required for an NADA, as well as data suggesting a reasonable expectation of effectiveness. After the submission and the review of the application, the FDA
through the CVM can then grant a conditional approval (CA-1). This approval allows for a commercialization of the product, while the sponsor continues to collect the substantial evidence of
effectiveness required for a full NADA approval. The sponsor has up to five years to demonstrate substantial evidence of effectiveness for a previously conditionally approved drug. Ideally, MUMS
designation helps move the product forward in development; however, it may not shorten the time to full commercialization. A sponsor that gains approval or conditional approval for a MUMS designated
drug receives seven years of marketing exclusivity.

As we announced in April 2016, we obtained protocol concurrence from the FDA for our pivotal trial of Canalevia that we initiated in December
2015 for acute diarrhea in dogs. We plan to pursue protocol concurrences from the FDA for future pivotal trials in other indications. Under this process, a protocol is submitted to the FDA voluntarily
by a drug sponsor. The FDA review of the protocol for a pivotal study makes it more likely that the study will generate information the sponsor needs to demonstrate whether the drug is safe and
effective for its intended use. It creates an expectation by the sponsor that the FDA will not later alter its perspectives on these issues unless public or animal health concerns appear that were not
recognized at the time of protocol assessment. Even if FDA issues a protocol concurrence, ultimate approval of an NADA by the FDA is not guaranteed because a final determination that the agreed-upon
protocol satisfies a specific objective, such as the demonstration of efficacy, or supports an approval decision, will be based on a complete review of all the data submitted to the FDA. Even if we
were to obtain protocol concurrence, such concurrence does not guarantee that the results of the study will support a particular finding or approval of the new drug.

Marketing Exclusivity

We are currently planning on seeking MUMS designation for some of our prescription drug products and if we receive such a designation, we will
be entitled to a seven-year marketing exclusivity, which means that we will face no competition from another sponsor marketing the same drug in the same dosage form for the same intended use. If we
were to lose such designation or not receive such designation but our application as a new animal drug is found to be a new chemical entity that meets the criteria described by the FDA, we would be
entitled to a five-year marketing exclusivity. In order to receive this five-year exclusivity, the FDA would have to find in its approval of our application that our NADA contains an API not
previously approved in another application, that the application itself is an original application, not a supplemental application, and that our application included the following studies: one or more
investigations to demonstrate substantial evidence of effectiveness of the drug for which we are seeking approval; animal safety studies and human food safety studies (where applicable). If the NADA
is seeking approval of a drug for which we have received conditional approval, we, upon approval would still be entitled to a five-year marketing exclusivity provided we meet the criteria as set forth
above. If, however, our NADA is for a drug for which the FDA has determined that the drug contains an API that has previously been approved, regardless of whether the original approval was for use in
humans or not, we may only be entitled to a three-year marketing exclusivity provided that the NADA is an original, not supplemental, application and contains both safety and efficacy studies
demonstrating the safety and efficacy of the drug which is the subject of the application. We have received MUMS designation for Canalevia for the indication of chemotherapy-induced diarrhea, or CID,
in dogs. Additionally, the FDA has indicated that the use of Canalevia for the treatment of EID in dogs qualifies as a "minor use", which means that Canalevia is eligible for conditional approval for
the indication of EID in dogs. If Canalevia is approved for CID
and EID in dogs, we expect to conduct the commercial launch of Canalevia for these indications in the first half of 2018.

European Union

The European Union, or EU, definition of a veterinary medicinal product closely matches the definition of an animal drug in the United States.
In the EU, a company can market a veterinary medicinal product only after a marketing authorization has been issued by an EU member state, (i.e.,
approval on a country-by-country basis) or by the EU Commission through the European Medicines Agency, or the EMA. Before the EU member state or the EU Commission issues marketing authorization, we
must submit a marketing authorization application, known as the dossier. The dossier includes data from studies showing the product's quality, safety, and efficacy and is similar to an NADA filed with
the FDA.

For
an animal drug, the Committee for Medicinal Products for Veterinary Use ("CVMP"), is responsible for the scientific evaluation. Experts from all EU member states are on the CVMP. The
Rapporteur, or lead reviewer on the dossier, prepares an overview of the committee's scientific evaluation, called the CVMP Assessment Report.

The
CVMP Assessment Report:



summarizes the data submitted by the company on the product's quality, safety, and efficacy;



explains the assessment done by the CVMP to support the committee's recommendation to the EU Commission to issue a marketing authorization; and



is the basis for the European Public Assessment Report published on the EMA's website.

Labeling

The FDA plays a significant role in regulating the labeling, advertising and promotion of animal drugs. This is also true of regulatory agencies
in the EU and other territories. In addition, advertising and promotion of animal health products is controlled by regulations in many countries. These rules generally restrict advertising and
promotion to those claims and uses that have been reviewed and approved by the applicable agency. We will conduct a review of advertising and promotional material for compliance with the local and
regional requirements in the markets where it eventually may sell its product candidates.

Our
non-prescription products will be labeled in accordance with the health guidelines outlined by the National Animal Supplements Council, an industry organization that sets industry
standards for certain non-prescription animal products, including but not limited to product labeling.

Other Regulatory Considerations

We believe regulatory rules relating to human food safety, food additives, or drug residues in food will not apply to the products we currently
are developing because our animal prescription drug product candidates are not intended for use in production animals, with the exception of horses, which qualify as food animals in Europe and Canada;
and our non-prescription products are not regulated by section 201(g) of the Federal Food, Drug, and Cosmetic Act, which the FDA is authorized to administer.

Our
animal prescription drug product candidates currently in development, if approved, may eventually face generic competition in the United States and in the EU after the period of
exclusivity has expired. In the United States, a generic animal drug may be approved pursuant to an abbreviated new animal drug application ("ANADA"). With an ANADA, a generic applicant is not subject
to the submission of new clinical and safety data but instead must only show that the proposed generic product is a copy of the novel drug product, and bioequivalent to the approved novel product.
However, if our product candidates are the first approved by the FDA or the EMA as applicable for use in animals, they will be
eligible for a five-year marketing exclusivity in the United States and 10 years in the EU thereby prohibiting generic entry into the market. If the product has MUMS designation it has a
seven-year marketing exclusivity.

We
do not believe that our animal non-prescription products are currently subject to regulation in the United States. The CVM only regulates those animal supplements that fall within the
FDA's definition of an animal drug, food or feed additive. The Federal Food Drug and Cosmetic Act defines food as "articles used for food or drink for man or other animals and articles used as
components of any such article." Animal foods are not subject to pre-market approval and are designed to provide a nutritive purpose to the animals that receive them. Feed additives are defined as
those articles that are added to an animal's feed or water as illustrated by the guidance documents. Our non-prescription products are not added to food, are not ingredients in food nor are they added
to any animal's drinking water. Therefore, our non-prescription products do not fall within the definition of a food or feed additive. The FDA seeks to

regulate
such supplements as food or food additives depending on the intended use of the product. The intended use is demonstrated by how the article is included in a food, or added to the animals'
intake (i.e., through its drinking water). If the intended use of the product does not fall within the proscribed use making the product a food,
it cannot be regulated as a food. There is no intent to make our non-prescription products a component of an animal food, either directly or indirectly. A feed additive is a product that is added to a
feed for any reason including the top dressing of an already prepared feed. Some additives, such as certain forage, are deemed to be Generally Recognized as Safe ("GRAS"), and therefore, not subject
to a feed Additive Petition approval prior to use. However, the substances deemed GRAS are generally those that are recognized as providing nutrients as a food does. We do not believe that our
non-prescription products fit within this framework either. Finally, a new animal drug refers to drugs intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease in
animals. Our non-prescription products are not intended to diagnose, cure, mitigate, treat or prevent disease and therefore, do not fit within the definition of an animal drug. Our non-prescription
products are intended to support a healthy gut, support fluid retention, and normalize stool formation in animals suffering from scours. Additionally, because a previously marketed human formulation
of the botanical extract in our non-prescription products was considered a dietary supplement subject to the Dietary Supplement Health and Education Act of 1994 (and not regulated as a drug by the
FDA), we do not believe that the FDA would regulate the animal formulation used in our non-prescription products in a different manner. We do not believe that our non-prescription products fit the
definition of an animal drug, food or food additive and therefore are not regulated by the FDA at this time.

In
addition to the foregoing, we may be subject to state, federal and foreign healthcare and/or veterinary medicine laws, including but not limited to anti-kickback laws, as we may from
time to time enter consulting and other financial arrangements with veterinarians, who may prescribe or recommend our products. If our financial relationships with veterinarians are found to be in
violation of such laws that apply to us, we may be subject to penalties.

Legal Proceedings

From time to time, we may become involved in litigation relating to claims arising from the ordinary course of business. Other than as set forth
below, there are currently no claims or actions pending against us, the ultimate disposition of which could have a material adverse effect on our results of operations, financial condition or cash
flows.

On
July 20, 2017, a putative class action complaint was filed in the United States District Court, Northern District of California, Civil Action No. 3:17-cv-04102, by Tony
Plant on behalf of pre-Merger shareholders of Jaguar who held shares on June 30, 2017 and were entitled to vote at the 2017 Special Shareholders Meeting, against us and certain individuals who
were directors as of the date of the vote, in a matter captioned Tony Plant v. Jaguar Animal Health, Inc., et al. The plaintiff attempts to assert claims arising under Section 14(a) and
Section 20(a) of the Exchange Act and Rule 14a-9, 17 C.F.R. § 240.14a-9, promulgated thereunder by the SEC. The plaintiff alleges that material omissions and
misstatements were contained in the Joint Proxy Statement/Prospectus on Form S-4 (File No. 333-217364) declared effective by the SEC on July 6, 2017 related to the solicitation of
votes from shareholders to approve the Merger and certain transaction related thereto. We believe the claims are without merit. While no monetary damages have been quantified, we intend to vigorously
contest this complaint, and we've now filed a motion to have the complaint dismissed.

The
plaintiff has not yet served the complaint and summons on any of the defendants. If plaintiff elected to proceed with the litigation and made service on the defendants, the
defendants would move to dismiss the complaint for failure to state a claim on which relief may be granted.

We were incorporated in the State of Delaware on June 6, 2013. Our principal executive offices are located at 201 Mission Street,
Suite 2375, San Francisco, CA 94015 and our telephone number is (415) 371-8300. Our website address is www.jaguar.health. The information
contained on, or that can be accessed through, our website is not part of this prospectus. Our voting common stock is listed on the NASDAQ Capital Market and trades under the symbol "JAGX." On
July 31, 2017, we completed the acquisition of Napo (the "Merger") pursuant to the Agreement and Plan of Merger, dated March 31, 2017, by and among the Company, Napo, Napo Acquisition
Corporation, and Napo's representative (the "Merger Agreement").

As of December 31, 2017, we had 36 employees. Of our employees, six hold D.V.M. or Ph.D. degrees and fifteen of our employees are engaged
in research and development activities. None of our employees are represented by labor unions or covered by collective bargaining agreements.

Description of Properties

Our corporate headquarters are located in San Francisco, California, where we sublease 6,008 rentable square feet of office space from SeeChange
Health Management Company, Inc. Our sublease agreement expires on August 31, 2018. We believe that our existing facilities are adequate for our near-term needs. We believe that suitable
additional or alternative space would be available if required in the future on commercially reasonable terms if we are not able to convert our current sublease to a lease by August 31, 2018 on
commercially reasonable terms.

The business, financial condition and operating results of the Company may be affected by a number of factors, whether currently known or
unknown, including but not limited to those described below. Any one or more of such factors could directly or indirectly cause the Company's actual results of operations and financial condition to
vary materially from past or anticipated future results of operations and financial condition. Any of these factors, in whole or in part, could materially and adversely affect the Company's business,
financial condition, results of operations and stock price. The following information should be read in conjunction with Part II, Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes in Part II, Item 8, "Financial
Statements and Supplementary Data" of this Annual Report.

Risks Related to Our Business

We have a limited operating history, expect to incur further losses as we grow and may be unable to achieve
or sustain profitability. Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern.

Since formation in June 2013, our operations have been primarily limited to the research and development of our animal prescription drug product
candidate, Canalevia, to treat various forms of diarrhea in dogs, our non-prescription product, Neonorm Calf, to help dairies and calf farms proactively retain fluid in calves, the ongoing
commercialization of Neonorm Foal, our antidiarrheal for newborn horses, and Equilevia, our planned product for total gut health in high-performance equine athletes. Since the consummation of the
Merger on July 31, 2017, our operations have also been heavily focused on research, development and the ongoing commercialization of our lead prescription drug product candidate, Mytesi, which
is approved by the U.S. FDA for the symptomatic relief of noninfectious diarrhea in adults with HIV/AIDS on antiretroviral therapy. As a result, we have limited meaningful historical operations upon
which to evaluate our business and prospects and have not yet demonstrated an ability to broadly commercialize any of our animal health products, obtain any required marketing approval for any of our
animal prescription drug product candidates or successfully overcome the risks and uncertainties frequently encountered by companies in emerging fields such as the animal health industry or the
gastrointestinal health industry in general. We also have not generated any material revenue to date, and expect to continue to incur significant research and development and other expenses. Our net
loss and comprehensive loss for the year ended December 31, 2017 was $22.0 million. As of December 31, 2017, we had total stockholders' equity of $17.3 million. We expect
to continue to incur losses for the foreseeable future, which will increase significantly from historical levels as we expand our product development activities, seek necessary approvals for our human
and veterinary drug product candidates, conduct species-specific formulation studies for our non-prescription products and begin commercialization activities. Even if we succeed in developing and
broadly commercializing one or more of our products or product candidates, we expect to continue to incur losses for the foreseeable future, and we may never become profitable. If we fail to achieve
or maintain profitability, then we may be unable to continue our operations at planned levels and be forced to reduce or cease operations.

As
more fully discussed in Note 1 to our financial statements, we believe there is substantial doubt about our ability to continue as a going concern as we do not currently have
sufficient cash resources
to fund our operations through March 31, 2019, or one year from the filing date of our Form 10-K. Our financial statements do not include any adjustments that may result from the outcome
of this uncertainty. If we are unable to continue as a viable entity, our stockholders may lose their entire investment.

We currently generate limited revenue from the sale of products and may never become profitable.

We are a natural-products pharmaceuticals company focused on the development and commercialization of novel, sustainably derived
gastrointestinal products for both human prescription use

and
animals on a global basis. Napo, our wholly-owned subsidiary, began the commercial pre-launch activities of our first FDA approved product, Mytesi, in February 2017. Accordingly, we have only
generated limited revenue from product sales. There is no guarantee that our ongoing commercialization efforts for Neonorm Calf for preweaned dairy calves in the United States and Neonorm Foal for
newborn horses in the United States will be successful or that we will be able to generate a consistent revenue stream from the sale of any of these products in the future. Further, in order to
commercialize our other prescription drug product candidates, we must receive regulatory approval from the FDA in the United States and other regulatory agencies in various jurisdictions. Other than
Mytesi, we have not yet received any regulatory approvals for our prescription drug product candidates. In addition, certain of our non-prescription products, such as Neonorm Calf, may be subject to
regulatory approval outside the United States prior to commercialization in other countries. Accordingly, until and unless we receive any necessary regulatory approvals, we cannot market or sell our
products in many regions. Moreover, even if we receive the necessary approvals, we may not be successful in generating revenue from sales of our products as we do not have any meaningful experience
marketing or distributing our products. Accordingly, we may never generate any material revenue from our operations.

We expect to incur significant additional costs as we continue commercialization efforts for current
prescription drug candidates, Neonorm, or other product candidates, and undertake the clinical trials necessary to obtain any necessary regulatory approvals, which will increase our losses.

We commenced sales of Neonorm for preweaned dairy calves in the United States under the brand name Neonorm Calf at the end of 2014, and Napo
commenced sales of Mytesi for
adults with HIV/AIDS on antiretroviral therapy in February 2017. We will need to continue to invest in developing our internal and third-party sales and distribution network and outreach efforts to
key opinion leaders in the gastrointestinal health industry, including physicians and veterinarians, as applicable. We will also need to conduct clinical trials for Canalevia in order to obtain
necessary initial regulatory approvals and to subsequently broaden Mytesi to additional indications and Canalevia to additional indications and additional species. We will also need to conduct
species-specific testing with Neonorm to expand to additional animal populations.

We
are actively identifying additional products for development and commercialization, and will continue to expend substantial resources for the foreseeable future to develop Mytesi,
Equilevia, Canalevia and Neonorm and develop products from Napo's library of over 2,300 medicinal plants. These expenditures will include costs associated
with:

uncertain,
the actual amounts necessary to successfully complete the development and commercialization of our current or future products and product candidates may be greater than we anticipate.

Because
we anticipate incurring significant costs for the foreseeable future, if we are not successful in broadly commercializing any of our current or future products or product
candidates or raising additional funding to pursue our research and development efforts, we may never realize the benefit of our development efforts and our business may be harmed.

We will need to raise substantial additional capital in the future in the event that we conduct clinical
trials for new indications and we may be unable to raise such funds when needed and on acceptable terms, which would force us to delay, limit, reduce or terminate one or more of our product
development programs.

We are forecasting continued losses and negative cash flows as we continue to fund our operating and marketing activities and research and
development programs, and we will not have sufficient cash on hand to fund our operating plan through March 31, 2019 and to complete the development of all the current products in our pipeline,
or any additional products we may identify. We will need to seek additional funds sooner than planned through public or private equity or debt financings or other sources such as strategic
collaborations. Any such financings or collaborations may result in dilution to our stockholders, the imposition of debt covenants and repayment obligations or other restrictions that may harm our
business or the value of our common stock. We may also seek from time to time to raise additional capital based upon favorable market conditions or strategic considerations such as potential
acquisitions or potential license arrangements.

Our
future capital requirements depend on many factors, including, but not limited to:



the scope, progress, results and costs of researching and developing our current and future prescription drug product candidates and
non-prescription products;



the timing of, and the costs involved in, obtaining any regulatory approvals for our current and any future products;



the number and characteristics of the products we pursue;



the cost of manufacturing our current and future products and any products we successfully commercialize;



the cost of commercialization activities for Mytesi, Neonorm, Equilevia and Canalevia, if approved, including sales, marketing and distribution
costs;



the expenses needed to attract and retain skilled personnel;



the costs associated with being a public company;



our ability to establish and maintain strategic collaborations, distribution or other arrangements and the financial terms of such agreements;
and



the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing possible patent claims, including litigation costs
and the outcome of any such litigation.

Additional
funds may not be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to
delay, limit, reduce or terminate one or more of our product development programs or future commercialization efforts.

We are substantially dependent on the success of our current lead prescription drug product candidates,
Mytesi and Canalevia, and our non-prescription products, Equilevia and Neonorm, and cannot be certain that necessary approvals will be received for planned Mytesi follow-on indications or Canalevia or
that these product candidates will be successfully commercialized, either by us or any of our partners.

Other than Mytesi, we currently do not have regulatory approval for any of our prescription drug product candidates, including Canalevia. Our
current efforts are primarily focused on the ongoing commercialization of Mytesi, Neonorm Calf and Neonorm Foal in the United States, and development efforts related to Mytesi, Equilevia, and
Canalevia, and on the development of formulations of Neonorm for additional species. With regard to Mytesi, we are focused on the commercial launch of the product in the United States as well as on
development efforts related to a follow-on indication for Mytesi in CID, an important supportive care indication for patients undergoing primary or adjuvant chemotherapy for cancer treatment. Mytesi
is also in development for rare disease indications for infants and children with congenital diarrheal disorders and short bowel syndrome; for IBS (Mytesi has demonstrated benefit to IBS-D patients in
published Phase 2 studies); for supportive care for IBD; and as a second-generation anti-secretory agent for use in cholera patients. Mytesi has received orphan-drug designation for SBS.
Accordingly, our near term prospects, including our ability to generate material product revenue, obtain any new financing if needed to fund our business and operations or enter into potential
strategic transactions, will depend heavily on the success of Mytesi, Equilevia and Neonorm, as well as on Canalevia, if Canalevia is approved.

Substantial
time and capital resources have been previously devoted by third parties in the development of crofelemer, the active pharmaceutical ingredient, or API, in Mytesi and
Canalevia, and the development of the botanical extract used in Equilevia and Neonorm. Both crofelemer and the botanical extract used in Equilevia and Neonorm were originally developed at Shaman
Pharmaceuticals, Inc. ("Shaman"), by certain members of our management team, including Lisa A. Conte, our chief executive officer and president, and Steven R. King, Ph.D., our executive vice
president of sustainable supply, ethnobotanical research and intellectual property and secretary. Shaman spent significant development resources before voluntarily filing for bankruptcy in 2001
pursuant to Chapter 11 of the U.S. Bankruptcy Code. The rights to crofelemer and the botanical extract used in Equilevia and Neonorm, as well as other intellectual property rights, were
subsequently acquired by Napo from Shaman in 2001 pursuant to a court approved sale of assets. Ms. Conte founded Napo in 2001 and was the current interim chief executive officer of Napo and a
member of Napo's board of directors prior to the Merger. While at Napo, certain members of our management team, including Ms. Conte and Dr. King, continued the development of crofelemer.
In 2005, Napo entered into license agreements with Glenmark and Luye Pharma Group Limited for rights to various human indications of crofelemer in certain territories as defined in the respective
license agreements with these licensees. Subsequently, after expending significant sums developing crofelemer, including trial design and on-going patient enrollment in the final pivotal
Phase 3 trial for crofelemer for non-infectious diarrhea in adults with HIV/AIDS on antiretroviral therapy, in late 2008, Napo entered into a collaboration agreement with Salix
Pharmaceuticals, Inc., or Salix, for development and commercialization rights to certain indications worldwide and certain rights in North America, Europe, and Japan, to crofelemer for human
use. In January 2014, Jaguar entered into the Napo License Agreement pursuant to which Jaguar acquired an exclusive worldwide license to Napo's intellectual property rights and technology, including
crofelemer and the botanical extract used in Equilevia and Neonorm, for all veterinary treatment uses and indications for all species of animals. In February 2014, most of the executive officers of
Napo, and substantially all Napo's employees, became Jaguar's employees. Following the merger of Jaguar and Napo in July 2017, Napo became Jaguar's wholly-owned subsidiary. If we are not
successful in the development and commercialization of Mytesi, Neonorm, Equilevia and Canalevia, our business and our prospects will be harmed.

The
successful development and commercialization of Mytesi, Equilevia and Neonorm, and, if approved, Canalevia will depend on a number of factors, including the
following:



the successful completion of the pivotal trials and toxicology studies for Canalevia, which may take significantly longer than we currently
anticipate and will depend, in part, upon the satisfactory performance of third-party contractors;



our ability to demonstrate to the satisfaction of the FDA and any other regulatory bodies, the safety and efficacy of Canalevia;



our ability and that of our contract manufacturers to manufacture supplies of Mytesi, Neonorm, Equilevia and Canalevia and to develop, validate
and maintain viable commercial manufacturing processes that are compliant with current good manufacturing practices, or cGMP, if required;



the success of Neonorm field studies and acceptance of their results by dairy producers;



our ability to successfully launch Mytesi and Neonorm, whether alone or in collaboration with others;



our ability to successfully launch Canalevia, assuming approval is obtained, and Equilevia, whether alone or in collaboration with others;

the acceptance of our prescription drug product candidates and non-prescription products as safe and effective by physicians, veterinarians,
patients, animal owners and the human and animal health community, as applicable;



our ability to achieve and maintain compliance with all regulatory requirements applicable to our business; and



our ability to obtain and enforce our intellectual property rights and obtain marketing exclusivity for our prescription drug product
candidates and non-prescription products, and avoid or prevail in any third-party patent interference, patent infringement claims or administrative patent proceedings initiated by third parties or the
U.S. Patent and Trademark Office ("USPTO").

Many
of these factors are beyond our control. Accordingly, we may not be successful in developing or commercializing Mytesi, Neonorm, Equilevia, Canalevia or any of our other potential
products. If we are unsuccessful or are significantly delayed in developing and commercializing Mytesi, Neonorm, Equilevia, Canalevia or any of our other potential products, our business and prospects
will be harmed and you may lose all or a portion of the value of your investment in our common stock.

If we are not successful in identifying, licensing, developing and commercializing additional product
candidates and products, our ability to expand our business and achieve our strategic objectives could be impaired.

Although a substantial amount of our efforts is focused on the commercial performance of Mytesi, Equilevia and Neonorm and the continued
development and potential approval of Canalevia, a key element of our strategy is to identify, develop and commercialize a portfolio of products to serve the gastrointestinal health market. Most of
our potential products are based on our knowledge of medicinal plants. Our current focus is primarily on product candidates whose active pharmaceutical ingredient or botanical extract has been
successfully commercialized or demonstrated to be safe and effective in human or animal trials. In some instances, we may be unable to further develop these potential products because of perceived
regulatory and commercial risks. Even if we successfully identify potential products, we may

an outside party may develop a cure for any disease state that is the target indication for any of our planned or approved drug products;



potential products we seek to develop may be covered by third-party patents or other exclusive rights;



a potential product may on further study be shown to have harmful side effects or other characteristics that indicate it is unlikely to be
effective or otherwise does not meet applicable regulatory criteria;



a potential product may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and



a potential product may not be accepted as safe and effective by physicians, veterinarians, patients, animal owners, key opinion leaders and
other decision-makers in the gastrointestinal health market, as applicable.

While
we are developing specific formulations, including flavors, methods of administration, new patents and other strategies with respect to our current potential products, we may be
unable to prevent competitors from developing substantially similar products and bringing those products to market earlier than we can. If such competing products achieve regulatory approval and
commercialization prior to our potential products, our competitive position may be impaired. If we fail to develop and successfully commercialize other potential products, our business and future
prospects may be harmed and we will be more vulnerable to any problems that we encounter in developing and commercializing our current potential products.

Mytesi faces significant competition from other pharmaceutical companies, both for its currently approved
indication and for planned follow-on indications, and our operating results will suffer if we fail to compete effectively.

The development and commercialization of products for human gastrointestinal health is highly competitive and our success depends on our ability
to compete effectively with other products in the market. During the ongoing commercialization of Mytesi for its currently approved indication, and during the future commercialization of Mytesi for
any planned follow-on indications, if such follow-on indications receive regulatory approval, we expect to compete with major pharmaceutical and biotechnology companies that operate in the
gastrointestinal space, such as Sucampo AG, Takeda Pharmaceuticals, Allergan, Inc., Ironwood Pharmaceuticals, Inc., Synergy Pharmaceuticals Inc., Heron Therapeutics, Inc.,
Sebela Pharmaceuticals, Inc. and Salix Pharmaceuticals.

Many
of our competitors and potential competitors in the human gastrointestinal space have substantially more financial, technical and human resources than we do. Many also have more
experience in the development, manufacture, regulation and worldwide commercialization of human gastrointestinal health products.

For
these reasons, we cannot be certain that we and Mytesi can compete effectively.

Our animal health products face significant competition from other pharmaceutical companies and our operating
results will suffer if we fail to compete effectively.

The development and commercialization of animal health products is highly competitive and our success depends on our ability to compete
effectively with other products in the market. We expect to

compete
with the animal health divisions of major pharmaceutical and biotechnology companies such as Merck Animal Health, Merial Inc., Elanco Animal Health, Bayer Animal Health GmbH,
Novartis Animal Health Inc. and Boehringer Ingelheim Animal Health, as well as specialty animal health medicines companies such as Zoetis Inc., Phibro Animal Health Corporation and, in
Europe, Virbac S.A., Vétoquinol S.A., Ceva Animal Health S.A. and Dechra Pharmaceuticals PLC. We are also aware of several early-stage companies that are
developing products for use in the animal health market, including Aratana Therapeutics, Inc., Kindred Biosciences, Inc., Parnell Pharmaceuticals Holdings Ltd, Nexvet Biopharma
and ImmuCell Corporation. We also compete with academic institutions, governmental agencies and private organizations that are conducting research in the field of animal health products.

Although
there are currently no FDA-approved anti-secretory products to treat chemotherapy-induced diarrhea (CID) in dogs, we anticipate that Canalevia, if approved, may face competition
from various products, including products approved for use in humans that are used extra-label in animals. Extra-label use is the use of an approved drug outside of its cleared or approved indications
in the animal context. All of our potential products could also face competition from new products in development. These and other potential competing products may benefit from greater brand
recognition and brand loyalty than our products and product candidates may achieve.

Many
of our competitors and potential competitors have substantially more financial, technical and human resources than we do. Many also have more experience in the development,
manufacture,
regulation and worldwide commercialization of animal health products, including animal prescription drugs and non-prescription products.

For
these reasons, we cannot be certain that we and our products can compete effectively.

We may be unable to obtain, or obtain on a timely basis, regulatory approval for our existing or future human
or animal prescription drug product candidates under applicable regulatory requirements, which would harm our operating results.

The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of human and animal health products are subject to
extensive regulation. We are typically not permitted to market our prescription drug product candidates in the United States until we receive approval of the product from the FDA through the filing of
an NDA or NADA, as applicable. To gain approval to market a prescription drug, we must provide the FDA with safety and efficacy data from pivotal trials that adequately demonstrate that our
prescription drug product candidates are safe and effective for the intended indications. Likewise, to gain approval to market an animal prescription drug for a particular species, we must provide the
FDA with safety and efficacy data from pivotal trials that adequately demonstrate that our prescription drug product candidates are safe and effective in the target species
(e.g. dogs, cats or horses) for the intended indications. In addition, we must provide manufacturing data evidencing that we can produce our
product candidates in accordance with cGMP. For the FDA, we must also provide data from toxicology studies, also called target animal safety studies, and in some cases environmental impact data. In
addition to our internal activities, we will partially rely on contract research organizations ("CROs"), and other third parties to conduct our toxicology studies and for certain other product
development activities. The results of toxicology studies, other initial development activities, and/or any previous studies in humans or animals conducted by us or third parties may not be predictive
of future results of pivotal trials or other future studies, and failure can occur at any time during the conduct of pivotal trials and other development activities by us or our CROs. Our pivotal
trials may fail to show the desired safety or efficacy of our prescription drug product candidates despite promising initial data or the results in previous human or animal studies conducted by
others. Success of a prescription drug product candidate in prior animal studies, or in the treatment of humans, does not ensure success in subsequent studies. Clinical trials in humans and pivotal
trials in animals sometimes fail to show a benefit even for drugs that are effective because of statistical limitations in the design of the trials or other statistical

anomalies.
Therefore, even if our studies and other development activities are completed as planned, the results may not be sufficient to obtain a required regulatory approval for a product candidate.

Regulatory
authorities can delay, limit or deny approval of any of our prescription drug product candidates for many reasons, including:



if they disagree with our interpretation of data from our pivotal studies or other development efforts;



if we are unable to demonstrate to their satisfaction that our product candidate is safe and effective for the target indication and, if
applicable, in the target species;



if they require additional studies or change their approval policies or regulations;



if they do not approve of the formulation, labeling or the specifications of our current and future product candidates; and



if they fail to approve the manufacturing processes of our third-party contract manufacturers.

Further,
even if we receive a required approval, such approval may be for a more limited indication than we originally requested, and the regulatory authority may not approve the
labeling that we believe is necessary or desirable for successful commercialization.

Any
delay or failure in obtaining any necessary regulatory approval for the intended indications of our human or animal product candidates would delay or prevent commercialization of
such product candidates and would harm our business and our operating results.

The results of our earlier studies of Mytesi and Neonorm may not be predictive of the results in any future
clinical trials and species-specific formulation studies, respectively, and we may not be successful in our efforts to develop or commercialize line extensions of Mytesi and Neonorm.

Our human and animal product pipeline includes a number of potential indications of Mytesi, our lead prescription product, and a number of
species-specific formulations of Neonorm, our commercially available non-prescription product. The results of our studies and other development activities and of any previous studies in humans or
animals conducted by us or third parties may not be predictive of future results of these clinical studies and formulation studies, respectively. Failure can occur at any time during the conduct of
these trials and other development activities. Even if our formulation/clinical studies and other development activities are completed as planned, the results may not be sufficient to pursue a
particular line extension for Mytesi or Neonorm, respectively. Further, even if we obtain promising results from our clinical trials or species-specific formulation studies, as applicable, we may not
successfully commercialize any line extension. Because line extensions are developed for a particular market, we may not be able to leverage our experience from the commercial launch of Mytesi,
Neonorm Calf and Neonorm Foal in new markets. If we are not successful in developing and successfully commercializing these line extension products, we may not be able to grow our revenue and our
business may be harmed.

Development of prescription drug products is inherently expensive, time-consuming and uncertain, and any
delay or discontinuance of our current or future pivotal trials would harm our business and prospects.

Development of prescription drug products for human and animal gastrointestinal health remains an inherently lengthy, expensive and uncertain
process, and our development activities may not be successful. We do not know whether our current or planned pivotal trials for any of our product candidates will begin or conclude on time, and they
may be delayed or discontinued for a variety of reasons, including if we are unable to:



address any safety concerns that arise during the course of the studies;



complete the studies due to deviations from the study protocols or the occurrence of adverse events;

reach agreement on acceptable terms with study sites, which can be subject to extensive negotiation and may vary significantly among different
sites.

Further,
we may not be successful in developing new indications for Mytesi and/or species-specific formulations for Neonorm, and Neonorm may be subject to the same regulatory regime as
prescription drug products in jurisdictions outside the United States. Any delays in completing our development efforts will increase our costs, delay our development efforts and approval process and
jeopardize our ability to commence product sales and generate revenue. Any of these occurrences may harm our business, financial condition and prospects. In addition, factors that may cause a delay in
the commencement or completion of our development efforts may also ultimately lead to the denial of regulatory approval of our product candidates which, as described above, would harm our business and
prospects.

We will partially rely on third parties to conduct our development activities. If these third parties do not
successfully carry out their contractual duties, we may be unable to obtain regulatory approvals or commercialize our current or future human or animal product candidates on a timely basis, or at all.

We will partially rely upon CROs to conduct our toxicology studies and for other development activities. We intend to rely on CROs to conduct
one or more of our planned pivotal trials. These CROs are not our employees, and except for contractual duties and obligations, we have limited ability to control the amount or timing of resources
that they devote to our programs or
manage the risks associated with their activities on our behalf. We are responsible for ensuring that each of our studies is conducted in accordance with the development plans and trial protocols
presented to regulatory authorities. Any deviations by our CROs may adversely affect our ability to obtain regulatory approvals, subject us to penalties or harm our credibility with regulators. The
FDA and foreign regulatory authorities also require us and our CROs to comply with regulations and standards, commonly referred to as good clinical practices ("GCPs"), or good laboratory practices
("GLPs"), for conducting, monitoring, recording and reporting the results of our studies to ensure that the data and results are scientifically valid and accurate.

Agreements
with CROs generally allow the CROs to terminate in certain circumstances with little or no advance notice. These agreements generally will require our CROs to reasonably
cooperate with us at our expense for an orderly winding down of the CROs' services under the agreements. If the CROs conducting our studies do not comply with their contractual duties or obligations,
or if they experience work stoppages, do not meet expected deadlines, or if the quality or accuracy of the data they obtain is compromised, we may need to secure new arrangements with alternative
CROs, which could be difficult and costly. In such event, our studies also may need to be extended, delayed or terminated as a result, or may need to be repeated. If any of the foregoing were to
occur, regulatory approval, if required, and commercialization of our product candidates may be delayed and we may be required to expend substantial additional resources.

Even if we obtain regulatory approval for planned follow-on indications of Mytesi, or for Canalevia or our
other product candidates, they may never achieve market acceptance. Further, even if we are successful in the ongoing commercialization of Mytesi and Neonorm, we may not achieve commercial success.

If we obtain necessary regulatory approvals for planned follow-on indications of Mytesi or for Canalevia or our other product candidates, such
products may still not achieve market acceptance and may not be commercially successful. Market acceptance of Mytesi, Canalevia, Neonorm and any of our other products depends on a number of factors,
including:



the safety of our products as demonstrated in our target animal studies;

the potential and perceived advantages over alternative treatments or products, including generic medicines and competing products currently
prescribed by physicians or veterinarians, as applicable, and, in the case of animal products, products approved for use in humans that are used extra-label in animals;



the acceptance by physicians, veterinarians, companion animal owners and production animal owners, including in the dairy industry, as
applicable, of our products as safe and effective;



the cost in relation to alternative treatments and willingness on the part of physicians, veterinarians, patients and animal owners, as
applicable, to pay for our products;



the prevalence and severity of any adverse side effects of our products;



the relative convenience and ease of administration of our products; and



the effectiveness of our sales, marketing and distribution efforts.

Any
failure by Mytesi, Canalevia, Equilevia, Neonorm or any of our other products to achieve market acceptance or commercial success would harm our financial condition and results of
operations.

The dairy industry is subject to conditions beyond our control and the occurrence of any such conditions may
harm our business and impact the demand for our products.

The demand for production animal health products, such as Neonorm Calf, is heavily dependent on factors that affect the dairy market that are
beyond our control, including the following, any of which may harm our business:



cost containment measures within the dairy industry, in response to international, national and local general economic conditions, which may
affect the market adoption of our products;



state and federal government policies, including government-funded programs or subsidies whose discontinuance or modification could erode the
demand for our products;



a decline in demand for dairy products due to changes in consumer diets away from dairy products, which could adversely affect the demand for
production animal health products;



adverse weather conditions and natural disasters, such as floods, droughts, and pestilence, which can lower dairy yields; and



disease or other conditions beyond our control.

Human and animal gastrointestinal health products are subject to unanticipated post-approval safety or
efficacy concerns, which may harm our business and reputation.

The success of our commercialization efforts will depend upon the perceived safety and effectiveness of human and animal gastrointestinal health
products, in general, and of our products, in particular. Unanticipated safety or efficacy concerns can subsequently arise with respect to approved prescription drug products, such as Mytesi, or
non-prescription products, such as Neonorm, which may result in product recalls or withdrawals or suspension of sales, as well as product liability and other claims. Any safety or efficacy concerns,
or recalls, withdrawals or suspensions of sales of our products could harm our reputation and business, regardless of whether such concerns or actions are justified.

Future federal and state legislation may result in increased exposure to product liability claims, which
could result in substantial losses.

Under current federal and state laws, companion and production animals are generally considered to be the personal property of their owners and,
as such, the owners' recovery for product liability claims involving their companion and production animals may be limited to the replacement value of the animal.

Companion
animal owners and their advocates, however, have filed lawsuits from time to time seeking non-economic damages such as pain and suffering and emotional distress for harm to their companion
animals based on theories applicable to personal injuries to humans. If new legislation is passed to allow recovery for such non-economic damages, or if precedents are set allowing for such recovery,
we could be exposed to increased product liability claims that could result in substantial losses to us if successful. In addition, some horses can be worth millions of dollars or more, and product
liability for horses may be very high. While we currently have product liability insurance, such insurance may not be sufficient to cover any future product liability claims against us.

If we fail to retain current members of our senior management, or to identify, attract, integrate and retain
additional key personnel, our business will be harmed.

Our success depends on our continued ability to attract, retain and motivate highly qualified management and scientific personnel. We are highly
dependent upon our senior management, particularly Lisa A. Conte, our president and Chief Executive Officer. The loss of services of any of our key personnel would cause a disruption in our ability to
develop our current or future product pipeline and commercialize our products and product candidates. Although we have offer letters with these key members of senior management, such agreements do not
prohibit them from resigning at any time. For example, the resignation of our former Chief Financial Officer, Charles O. Thompson, in September 2014, and the mutually agreed departure of our former
Chief Veterinary Officer, Serge Martinod, D.V.M., Ph.D. in February 2015, caused us to incur additional expenses and expend resources to ensure a smooth transition with their respective successors,
which diverted management attention away from executing our operational plan during this period. We currently do not maintain "key man" life insurance on any of our senior management team. The loss of
Ms. Conte or other members of our current senior management could adversely affect the timing or outcomes of our current and planned studies, as well as the prospects for commercializing our
products.

In
addition, competition for qualified personnel in the human and animal gastrointestinal health fields is intense, because there are a limited number of individuals who are trained or
experienced in the field. Further, our headquarters are located in San Francisco, California, and the dairy and agriculture industries are not prevalent in urban areas such as San Francisco. We will
need to hire additional personnel as we expand our product development and commercialization activities. Even if we are successful in hiring qualified individuals, as we are a growing organization, we
do not have a track record for integrating and retaining individuals. If we are not successful in identifying, attracting, integrating or retaining qualified personnel on acceptable terms, or at all,
our business will be harmed.

We are dependent on two suppliers for the raw material used to produce the active pharmaceutical ingredient
in Mytesi and Canalevia and the botanical extract in Neonorm and Equilevia. The termination of either of these contracts would result in a disruption to product development and our business will be
harmed.

The raw material used to manufacture Mytesi, Canalevia, Neonorm and Equilevia is crude plant latex ("CPL"), derived from the Croton lechleri tree, which is found in countries in South America, principally Peru. The ability of our contract suppliers to harvest CPL is governed
by the terms of their respective agreements with local government authorities. Although CPL is available from multiple suppliers, we only have contracts with two suppliers to obtain CPL and arrange
the shipment to our contract manufacturer. Accordingly, if our contract suppliers do not or are unable to comply with the terms of our respective agreements, and we are not able to negotiate new
agreements with alternate suppliers on terms that we deem commercially reasonable, it may harm our business and prospects. The countries from which we obtain CPL could change their laws and
regulations regarding the export of the natural products or impose or increase taxes or duties payable by exporters of such products. Restrictions could be imposed on the harvesting of the natural
products or additional
requirements could be implemented for the replanting and regeneration of the raw material. Such events could have a significant impact on our cost and ability to produce Mytesi, Canalevia, Neonorm,
Equilevia and anticipated line extensions.

We are dependent upon third-party contract manufacturers, both for the supply of the active pharmaceutical
ingredient in Mytesi and Canalevia and the botanical extract in Neonorm and Equilevia, as well as for the supply of finished products for commercialization.

We have contracted with third parties for the formulation of API and botanical extract into finished products for our studies. We have also
entered into memorandums of understanding with Indena S.p.A. for the manufacture of CPL received from our suppliers into the API in Canalevia to support our regulatory filings, as well as the
botanical extract in Neonorm and agreed to negotiate a commercial supply agreement. Indena S.p.A. has never manufactured either such ingredient to commercial scale. As a second supplier
situation, we have entered into a four-year manufacturing and supply agreement with Glenmark for the supply of the API in Canalevia. Glenmark
is the current manufacturer of crofelemer, the active API in Canalevia, for Mytesi, and the manufacturer on file for the NADA to which we have a right of reference. As announced in October of 2015, we
have entered an agreement with Patheon, a provider of drug development and delivery solutions, under which Patheon provides enteric-coated tablets to us for use in animals. We also may contract with
additional third parties for the formulation and supply of finished products, which we will use in our planned studies and commercialization efforts.

We
will be dependent upon our contract manufacturers for the supply of the API in Mytesi and Canalevia. We currently have sufficient quantities of the botanical extract used in Neonorm
and Equilevia to support initial commercialization of Neonorm and Equilevia. However, we will require additional quantities of the botanical extract if our ongoing commercial launch of Neonorm or our
commercial launch of and Equilevia is successful. If we are not successful in reaching agreements with third parties on terms that we consider commercially reasonable for manufacturing and
formulation, or if our contract manufacturer and formulator are not able to produce sufficient quantities or quality of API, botanical extract or finished product under their agreements, it could
delay our plans and harm our business prospects.

The
facilities used by our third-party contractors are subject to inspections, including by the FDA, and other regulators, as applicable. We also depend on our third-party contractors to
comply with cGMP. If our third-party contractors do not maintain compliance with these strict regulatory requirements, we and they will not be able to secure or maintain regulatory approval for their
facilities, which would have an adverse effect on our operations. In addition, in some cases, we also are dependent on our third-party contractors to produce supplies in conformity to our
specifications and maintain quality control and quality assurance practices and not to employ disqualified personnel. If the FDA or a comparable foreign regulatory authority does not approve the
facilities of our third-party contractors if so required, or if it withdraws any such approval in the future, we may need to find alternative manufacturing or formulation facilities, which could
result in delays in our ability to develop or commercialize our human and animal products, if at all. We and our third-party contractors also may be subject to penalties and sanctions from the FDA and
other regulatory authorities for any violations of applicable regulatory requirements. The USDA and the European Medicines Agency (the "EMA"), employ different regulatory standards than the FDA, so we
may require multiple manufacturing processes and facilities for the same human or animal product candidate or any approved product. We are also exposed to risk if our third-party contractors do not
comply with the negotiated terms of our agreements, or if they suffer damage or destruction to their facilities or equipment.

If we are unable to establish sales capabilities on our own or through third parties, we may not be able to
market and sell our current or future human or animal products and product candidates, if approved, and generate product or other revenue.

We currently have limited sales, marketing or distribution capabilities, and prior to Napo's launch of Mytesi for the symptomatic relief of
noninfectious diarrhea in adults with HIV/AIDS on antiretroviral therapy, and our launch of Neonorm for preweaned dairy calves, we had no experience in the sale, marketing and distribution of human or
animal health products. There are significant risks involved in

building
and managing a sales organization, including our potential inability to attract, hire, retain and motivate qualified individuals, generate sufficient sales leads, provide adequate training to
sales and marketing personnel and effectively oversee a geographically dispersed sales and marketing team. Any failure or delay in the development of our internal sales, marketing and distribution
capabilities and entry into adequate arrangements with distributors or other partners would adversely impact the commercialization of Mytesi, Neonorm, Equilevia and, if approved, Canalevia. If we are
not successful in commercializing Mytesi, Neonorm, Equilevia, Canalevia or any of our other line extension products, either on our own or through one or more distributors, or in generating upfront
licensing or other fees, we may never generate significant revenue and may continue to incur significant losses, which would harm our financial condition and results of operations.

Changes in distribution channels for animal health prescription drugs may make it more difficult or expensive
to distribute our animal health prescription drug products.

In the United States, animal owners typically purchase their animal health prescription drugs from their local veterinarians who also prescribe
such drugs. There is a trend, however, toward increased purchases of animal health prescription drugs from Internet-based retailers, "big-box" retail stores and other over-the-counter distribution
channels, which follows an emerging shift in recent years away from the traditional veterinarian distribution channel. It is also possible that animal owners may come to rely increasingly on
Internet-based animal health information rather than on their veterinarians. We currently expect to market our animal health prescription drugs directly to veterinarians, so any reduced reliance on
veterinarians by animal owners could harm our business and prospects by making it more difficult or expensive for us to distribute our animal health prescription drug products.

Legislation
has been or may be proposed in various states that would require veterinarians to provide animal owners with written prescriptions and disclosures that the animal owner has
the right to fill the prescriptions through other means. If enacted, such legislation could lead to a reduction in the number of animal owners who purchase their animal health pharmaceuticals directly
from veterinarians, which also could harm our business.

Veterinarians will be our primary customers for our prescription animal health drug products, as well as, to some extent, our non-prescription
animal health products, such as Neonorm and Equilevia. In recent years, there has been a trend towards the consolidation of veterinary clinics and animal hospitals. If this trend continues, these
large clinics and hospitals could attempt to leverage their buying power to obtain favorable pricing from us and other animal health product companies. Any downward pressure on the prices of any of
our animal health products could harm our operating results and financial condition.

We will need to increase the size of our organization and may not successfully manage such growth.

As of December 31, 2017, we had 36 full-time equivalent (FTE) employees. Our ability to manage our growth effectively will require us to
hire, train, retain, manage and motivate additional employees and to implement and improve our operational, financial and management systems. These demands also may require the hiring of additional
senior management personnel or the development of additional expertise by our senior management personnel. If we fail to expand and enhance our operational, financial and management systems in
conjunction with our potential future growth, it could harm our business and operating results.

Research and development with respect to our animal health products and product candidates relies on
evaluations in animals, which is controversial and may become subject to bans or additional regulations.

The evaluation of our animal health products and product candidates in target animals is required to develop, formulate and commercialize our
animal health products and product candidates. Although our animal testing will be subject to GLPs and GCPs, as applicable, animal testing in the human pharmaceutical industry and in other industries
continues to be the subject of controversy and adverse publicity. Some organizations and individuals have sought to ban animal testing or encourage the adoption of additional regulations applicable to
animal testing. To the extent that such bans or regulations are imposed, our research and development activities with respect to animal health products, and by extension our operating results and
financial condition, could be harmed. In
addition, negative publicity about animal practices by us or in our industry could harm our reputation among potential customers.

If approved, our animal health prescription drug product candidates may be marketed in the United States only
in the target animals and for the indications for which they are approved, and if we want to expand the approved animals or indications, it will need to obtain additional approvals, which may not be
granted.

If our animal health prescription drug product candidates are approved by regulatory authorities, we may market or advertise them only in the
specific species and for treatment of the specific indications for which they were approved, which could limit use of the products by veterinarians and animal owners. We intend to develop, promote and
commercialize approved products for other animals and new treatment indications in the future, but we cannot be certain whether or at what additional time and expense we will be able to do so. If we
do not obtain marketing approvals for other species or for new indications, our ability to expand our animal health business may be harmed.

Under
the Animal Medicinal Drug Use Clarification Act of 1994, veterinarians are permitted to prescribe extra-label uses of certain approved animal drugs and approved human drugs for
animals under certain conditions. While veterinarians may in the future prescribe and use human-approved products or use our products for extra-label uses, we may not promote our animal health
products for extra-label uses. We note that extra-label uses are uses for which the product has not received approval. If the FDA determines that any of our marketing activities constitute promotion
of an extra-label use, we could be subject to regulatory enforcement, including seizure of any misbranded or mislabeled drugs, and civil or criminal penalties, any of which could have an adverse
impact on our reputation and expose us to potential liability. We will continue to spend resources ensuring that our promotional claims for our animal health products and product candidates remain
compliant with applicable FDA laws and regulations, including materials we post or link to on our website. For example, in 2012, our Chief Executive Officer received an "untitled letter" from the FDA
while at Napo regarding preapproval promotion statements constituting misbranding of crofelemer, which was then an investigational drug. These statements were included in archived press releases
included on Napo's website. Napo was required to expend time and resources to revise its website to remove the links in order to address the concerns raised in the FDA's letter.

If our human or animal prescription drug product candidates are approved by regulatory authorities, the
misuse or extra-label use of such products may harm our reputation or result in financial or other damages.

If our human or animal prescription drug product candidates are approved by regulatory authorities, there may be increased risk of product
liability if physicians, veterinarians, patients, animal owners or others, as applicable, attempt to use such products extra-label, including the use of our products for indications or in species for
which they have not been approved. Furthermore, the use of an approved human or animal drug for indications other than those indications for which
such products have been approved may not be effective, which could harm our reputation and lead to an increased risk of litigation. If we are deemed by a governmental or regulatory agency to have
engaged in the promotion of any approved human or animal product for extra-label use, such agency could request that we modify our training or promotional materials and practices and we could be
subject to significant fines and penalties,

and
the imposition of these sanctions could also affect our reputation and position within the gastrointestinal health industry. Any of these events could harm our reputation and our operating
results.

We may not maintain the benefits associated with MUMS designation, including market exclusivity.

Although we have received MUMS designation for Canalevia for the treatment of CID in dogs, we may not maintain the benefits associated with MUMS
designation. MUMS designation is a status similar to "orphan drug" status for human drugs. When we were granted MUMS designation for Canalevia for the indication of CID in dogs, we became eligible for
incentives to support the approval or conditional approval of the designated use. This designation does not allow us to commercialize a product until such time as we obtain approval or conditional
approval of the product.

Because
Canalevia has received MUMS designation for the identified particular intended use, we are eligible to obtain seven years of exclusive marketing rights upon approval (or
conditional approval) of Canalevia for that intended use and become eligible for grants to defray the cost of our clinical work. Each designation that is granted must be unique, i.e., only one
designation can be granted for a particular API in a particular dosage form for a particular intended use. The intended use includes both
the target species and the disease or condition to be treated.

At
some point, we could lose MUMS designation. The basis for a lost designation can include but is not limited to, our failure to engage with due diligence in moving forward with a
non-conditional approval, or a competing product has received conditional approval or approval prior to our product candidate for the same indication or species. In addition, MUMS designation may be
withdrawn for a variety of reasons such as where the FDA determines that the request for designation was materially defective, or if the manufacturer is unable to assure sufficient quantity of the
prescription drug product to meet the needs of animals with the rare disease or condition. If this designation is lost, it could have a negative impact on the product and us, which includes but is not
limited to, market exclusivity related to MUMS designation, or eligibility for grants as a result of MUMS designation.

The market for our human or animal products, and the gastrointestinal health market as a whole, is uncertain
and may be smaller than we anticipate, which could lead to lower revenue and harm our operating results.

It is very difficult to estimate the commercial potential of any of our human or animal products because the gastrointestinal health market
continues to evolve and it is difficult to predict the market potential for our products. The market will depend on important factors such as safety and efficacy compared to other available
treatments, changing standards of care, preferences of physicians and veterinarians, as applicable, the willingness of patients and companion and production animal owners, as applicable, to pay for
such products, and the availability of competitive alternatives that may emerge either during the product development process or after commercial introduction. If the market potential for our human or
animal products is less than we anticipate due to one or more of these factors, it could negatively impact our business, financial condition and results of operations. Further, the willingness of
patients and companion and production animal owners to pay for our products may be less than we anticipate, and may be negatively affected by overall economic conditions. Moreover, with respect to our
animal health products, the current penetration of animal insurance in the United States is low, animal owners are likely to have to pay out-of-pocket, and such owners may not be willing or able to
pay for our products.

Insurance coverage for Mytesi for its current approved indication could decrease or end, or Mytesi might not
receive insurance coverage for any approved follow-on indications, which could lead to lower revenue and harm our operating results.

For its current approved indication, Mytesi is currently covered by all of the top 10 commercial insurance plans, representing more than
245 million U.S. lives. In 50% of these plans it is currently on Tier 3 with no restrictions, and in 50% it is currently on Tier 3 with a prior authorization required. In the

top
10 Managed Medicare plans, which represent 24 million covered lives, Mytesi is currently covered on 10% of plans. Mytesi is currently covered on Medicaid in all 50 states. However, the
nature or extent of coverage for Mytesi by any of these plans or programs could change or be terminated, or Mytesi might not receive insurance coverage for any approved follow-on indications. Either
outcome could lead to significantly lower revenue and significantly harm our operating results.

We may engage in future acquisitions that increase our capital requirements, dilute our stockholders, cause
us to incur debt or assume contingent liabilities and subject us to other risks.

We may evaluate various strategic transactions, including licensing or acquiring complementary products, technologies or businesses. Any
potential acquisitions may entail numerous risks, including increased operating expenses and cash requirements, assimilation of operations and products, retention of key employees, diversion of our
management's attention and uncertainties in our ability to maintain key business relationships of the acquired entities. In addition, if we undertake acquisitions, we may issue dilutive securities,
assume or incur debt obligations, incur large one-time expenses and acquire intangible assets that could result in significant future amortization expense. Moreover, we may not be able to locate
suitable acquisition opportunities and this inability could impair our ability to grow or obtain access to technology or products that may be important to the development of our business.

Certain of the countries in which we plan to commercialize our products in the future are developing
countries, some of which have potentially unstable political and economic climates.

We may commercialize our products in jurisdictions that are developing and emerging countries. This may expose us to the impact of political or
economic upheaval, and we could be subject to unforeseen administrative or fiscal burdens. At present, we are not insured against the political and economic risks of operating in these countries. Any
significant changes to the political or economic climate in any of the developing countries in which we operate or plan to sell products either now or in the future may have a substantial adverse
effect on our business, financial condition, trading performance and prospects.

Fluctuations in the exchange rate of foreign currencies could result in currency transactions losses.

As we expand our operations, we expect to be exposed to risks associated with foreign currency exchange rates. We anticipate that we will
commercialize Neonorm for preweaned dairy calves and its line extensions, as well as possibly Canalevia and its line extensions in jurisdictions outside the United States. As a result, we will also be
further affected by fluctuations in exchange rates in the future to the extent that sales are denominated in currencies other than U.S. dollars. We do not currently employ any hedging or other
strategies to minimize this risk, although we may seek to do so in the future.

There are other gastrointestinal-focused human pharmaceutical companies, and we face competition in the
marketplaces in which we operate or plan to operate.

Our commercial success in the human drug arena remains dependent on maintaining or establishing a competitive position in the market for the
current, approved specialty indication of Mytesi as well as for planned Mytesi follow-on indications. In the IBS-D market in particular, several competitors have commercially available products
approved for our planned IBS-D indication. The availability of our competitors' products could limit the demand, and the price we are able to charge, for any drug candidate we develop. The inability
to compete with existing or subsequently introduced drug candidates would have a material adverse impact on our business, financial condition and prospects.

Our obligations to Hercules, and subject to certain events, to CVP, are secured by a security interest in
substantially all of our veterinary related assets, so if we default on those obligations, Hercules or CVP could foreclose on our assets.

Our obligations under the loan and security agreement with Hercules Capital, Inc. (f/k/a Hercules Technology Growth Capital, Inc.)
("Hercules") are secured by a security interest in substantially all of our veterinary related assets, including intellectual property. As a result, if we default on our obligations under the loan and
security agreement (the "Hercules Debt"), Hercules could foreclose on its security interests and liquidate some or all of these assets, which would harm our veterinary related business, financial
condition and results of operations and could require us to reduce or cease operations. In addition, Chicago Venture Partners, L.P. ("CVP") may acquire a security interest in substantially all
of our veterinary related assets upon the earlier of CVP purchasing Hercules Debt or the repayment in full of the Hercules Debt, as provided in the Security Agreement, dated June 29, 2017,
between us and CVP, the Security Agreement, dated December 8, 2017, between us and CVP, and the Subordination Agreement and Right to Purchase Debt, dated June 29, 2017, by and among us,
CVP and Hercules.

Napo's obligations to the holders of the Kingdon Notes are secured by a security interest in substantially
all of Napo's assets, so if we default on those obligations, the convertible note holders could foreclose on Napo's assets.

Napo's obligations under the convertible promissory notes (the "Kingdon Notes") issued pursuant to the Amended and Restated Note Purchase
Agreement, dated March 31, 2017, by and among Kingdon Associates, M. Kingdon Offshore Master Fund L.P., Kingdon Family Partnership, L.P. and Kingdon Credit Master Fund L.P.
(collectively, the "Kingdon Purchasers") and Napo and the related transaction documents are secured by a security interest in substantially all of Napo's assets, including Napo intellectual property.
As a result, if we default under our obligations under the Kingdon Notes or the transaction documents, the holders of such Kingdon Notes, acting through their appointed agent, could foreclose on their
security interests and liquidate some or all of these assets, which would harm our business, financial condition and results of operations and could require us to reduce or cease operations.

Risks Related to Intellectual Property

We cannot be certain that our patent strategy will be effective to protect against competition

Our commercial success depends in large part on obtaining and maintaining patent, trademark and trade secret protection of our human or animal
products, both prescription and non-prescription, our current human or animal product candidates and any future human or animal product candidates, and their respective components, formulations,
methods used to manufacture them and methods of treatment, as well as successfully defending our patents and other intellectual property rights against third-party challenges. Our ability to stop
unauthorized third parties from making, using, selling, offering to sell or importing our products or our product candidates is dependent upon the extent to which we have rights under valid and
enforceable patents, trade secrets and other similar intellectual property that cover these activities. The patent prosecution process is expensive and time-consuming, and we may not be able to
prepare, file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of
inventions made in the course of development and commercialization activities in time to obtain patent protection on them.

We
have a portfolio of United States and foreign issued patents and pending applications related to our products and product candidates. We have five issued United States patents listed
in the FDA's
Orange Book for Mytesi. We plan to rely on certain of these issued patents as protection for Canalevia. The strength of patents in the field of pharmaceuticals and animal health involves complex legal
and scientific questions and can be uncertain. We cannot be certain that pending applications will issue as patents. For those patents that are already issued and even if other patents do successfully
issue, third parties may challenge their validity, enforceability or scope, which may result in such patents being narrowed,

invalidated
or held unenforceable. Furthermore, even if they are unchallenged, our patents may not adequately protect our intellectual property or prevent others from designing around their claims. If
the patents we have are not maintained or their scope is significantly narrowed or if we are not able to obtain issued patents from pending applications, our business and prospects would be harmed.

Recent
patent reform legislation could increase the uncertainties and costs surrounding the prosecution of any patent applications and the enforcement or defense of any patents that
issue. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law.
These include provisions that affect the way patent applications are prosecuted, redefine prior art, may affect patent litigation, and switch the U.S. patent system from a "first-to-invent" system to
a "first-to-file" system. Under a "first-to-file" system, assuming the other requirements for patentability are met, the first inventor to file a patent application generally will be entitled
to the patent on an invention regardless of whether another inventor had made the invention earlier. The USPTO has developed new regulations and procedures to govern administration of the Leahy-Smith
Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first-to-file provisions, became effective on March 16, 2013. Among some of
the other changes to the patent laws are changes that limit where a patentee may file a patent infringement suit and that provide opportunities for third parties to challenge any issued patent
in the USPTO. The Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our patents
and any other patents that issue, all of which could harm our business and financial condition.

Obtaining and maintaining our patent protection depends on compliance with various procedural, document
submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance and annuity fees on any issued patent and, in certain jurisdictions, pending applications, are due to be paid to the USPTO
and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary,
fee payment and other similar
provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are
situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction.
Non-compliance events that could result in abandonment or lapse of a patent or patent application include failure to respond to official actions within prescribed time limits, non-payment of fees and
failure to properly legalize and submit formal documents. If we fail to maintain the patents and patent applications covering our prescription drug products, prescription drug product candidates and
non-prescription products, our competitors might be able to enter the market, which would harm our business.

Third parties may initiate legal proceedings alleging that we are infringing their intellectual property
rights, which would be costly, time-consuming and, if successfully asserted against us, delay or prevent the development and commercialization of our current or future products and product candidates.

Our research, development and commercialization activities may infringe or otherwise violate or be claimed to infringe or otherwise violate
patents owned or controlled by other parties. There may be patents already issued of which we are unaware that might be infringed by a product or one of our current or future prescription drug product
candidates or non-prescription products. Moreover, it is also possible that patents may exist that we are aware of, but that we do not believe are relevant to our current or future prescription drug
product candidates or non-prescription products, which could nevertheless be found to block our freedom to market these products. Because patent applications can take many years to issue and

may
be confidential for 18 months or more after filing, there may be applications now pending of which we are unaware and which may later result in issued patents that may be infringed by our
current or future prescription drug product candidates or non-prescription products. We cannot be certain that our products, current or future prescription drug product candidates or non-prescription
products will not infringe these or other existing or future third-party patents. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon
these patents.

To
the extent we become subject to future third-party claims against us or our collaborators, we could incur substantial expenses and, if any such claims are successful, we could be
liable to pay substantial damages, including treble damages and attorney's fees if we or our collaborators are found to be willfully infringing a third party's patents. If a patent infringement suit
were brought against us or our collaborators, we or they could be forced to stop or delay research, development, manufacturing or sales of the human or animal prescription drug or non-prescription
product that is the subject of the suit. Even if we are successful in defending such claims, infringement and other intellectual property claims can be expensive and time-consuming to litigate and
divert management's attention from our
business and operations. As a result of or in order to avoid potential patent infringement claims, we or our collaborators may be compelled to seek a license from a third party for which we would be
required to pay license fees or royalties, or both. Moreover, these licenses may not be available on acceptable terms, or at all. Even if we or our collaborators were able to obtain such a license,
the rights may be nonexclusive, which could allow our competitors access to the same intellectual property. Any of these events could harm our business and prospects.

Our proprietary position depends upon patents that are formulation or method-of-use patents, which do not
prevent a competitor from using the same human or animal drug for another use.

Composition-of-matter patents on the API in prescription drug products are generally considered to be the strongest form of intellectual
property protection because such patents provide protection without regard to any particular method of use or manufacture or formulation of the API used. The composition-of-matter patents for
crofelemer, the API in Mytesi and Canalevia, have expired, and the issued patents and applications relevant to our products and product candidates cover formulations and methods of use for crofelemer
and the botanical extract in Neonorm and Equilevia.

Method-of-use
patents protect the use of a product for the specified method and formulation patents cover formulations of the API or botanical extract. These types of patents do not
prevent a competitor from developing or marketing an identical product for an indication that is outside the scope of the patented method or from developing a different formulation that is outside the
scope of the patented formulation. Moreover, with respect to method-of-use patents, even if competitors do not actively promote their product for our targeted indications or uses for which we may
obtain patents, physicians may recommend that patients use our products extra-label, and veterinarians may recommend that animal owners use these products extra-label, or animal owners may do so
themselves. Although extra-label use may infringe or contribute to the infringement of method-of-use patents, the practice is common and such infringement is difficult to prevent or prosecute.

We may be involved in lawsuits to protect or enforce our patents, which could be expensive, time-consuming
and unsuccessful, and third parties may challenge the validity or enforceability of our patents and they may be successful.

We intend to rely upon a combination of regulatory exclusivity periods, patents, trade secret protection, and confidentiality agreements to
protect the intellectual property related to Mytesi, our current prescription drug product candidates, non-prescription products and our development programs.

If
the breadth or strength of protection provided by any patents, patent applications or future patents we may own, license, or pursue with respect to any of our current or future
product candidates or products

is
threatened, it could threaten our ability to commercialize any of our current or future human or animal product candidates or products. Further, if we encounter delays in our development efforts,
the period of time during which we could market any of our current or future product candidates or products under any patent protection we obtain would be reduced.

Given
the amount of time required for the development, testing and regulatory review of new product candidates or products, patents protecting such candidates might expire before or
shortly after such product candidates or products are commercialized. Patent term extension has been applied for US 7,341,744 to account for regulatory delays in obtaining human marketing
approval for crofelemer. The FDA and the USPTO have confirmed that US 7,341,744 is eligible for an extension of 1075 days and we await issuance of the patent term extension certificate. With
respect to requests for patent term extensions, the applicable authorities, including the USPTO and the FDA, and any equivalent regulatory authority in other countries, may not agree with our
assessment of whether such extensions are available, and may refuse to grant extensions to patents, or may grant more limited extensions than requested. If this occurs, our competitors may take
advantage of our investment in development and trials by referencing our clinical and preclinical data and launch their product earlier than might otherwise be the case.

Even
where laws provide protection or we are able to obtain patents, costly and time-consuming litigation may be necessary to enforce and determine the scope of our proprietary rights,
and the outcome of such litigation would be uncertain. Moreover, any actions we may bring to enforce our intellectual property against our competitors could provoke them to bring counterclaims against
us, and some of our competitors have substantially greater intellectual property portfolios than we have. To counter infringement or unauthorized use of any patents we may obtain, we may be required
to file infringement claims, which can be expensive and time-consuming to litigate. In addition, if we or one of our future collaborators were to initiate legal proceedings against a third party to
enforce a patent covering one of our products, current product candidates, or one of our future products, the defendant could counterclaim that the patent is invalid or unenforceable. In patent
litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace and challenges to validity of patents in certain foreign jurisdictions is common as
well. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, non-enablement or lack of statutory subject
matter. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant material information from the USPTO, or made a
materially misleading statement, during prosecution. In particular, Mytesi has regulatory exclusivity as a new chemical entity until December 31, 2017. Under the Hatch-Waxman Act, a competitor
seeking to market a generic form of Mytesi before the expiration of any of the patents listed in the FDA's Orange Book for Mytesi could file (and could have filed after December 31, 2016) an
ANDA with a certification under 21 U.S.C.
§ 3559j)(2)(A)(iv) that each of these patents (except for those which the ANDA filer states it will market only after its expiration) is either invalid, unenforceable or not
infringed. We may assert the patents in Hatch-Waxman litigation against the party filing the ANDA to keep the competing product off of the market until the patents expire but there is a risk that we
will not succeed. The party filing the ANDA may also counterclaim in the litigation that the our patents are not valid or unenforceable, and the court may find one or more claims of our patents
invalid or unenforceable. If this occurs, a competing generic product could be marketed prior to expiration of our patents listed in the Orange Book, which would harm our business.

Third
parties may also raise similar validity claims before the USPTO in post-grant proceedings such as ex parte reexaminations, inter partes review, or
post-grant review, or oppositions or similar proceedings outside the United States, in parallel with litigation or even outside
the context of litigation. The outcome following legal assertions of invalidity and unenforceability is unpredictable. If a defendant were to prevail on a legal assertion of invalidity or
unenforceability, we would lose at least part, and perhaps all, of any future patent protection on one or more of our products or our current or future product candidates. Such a loss of patent
protection could harm our business. We cannot be certain that there is no invalidating prior

art,
of which we and the patent examiner were unaware during prosecution or other basis for a finding of invalidity. Litigation proceedings may fail and, even if successful, may result in substantial
costs and distract our management and other employees. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that
some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other
interim proceedings or developments. If securities analysts or investors perceive these results to be unsuccessful, it could have an adverse effect on the price of our common stock. Finally, we may
not be able to prevent, misappropriation of our trade secrets or confidential information, particularly in countries where the laws may not protect those rights as fully as in the United States.

If we are unable to prevent disclosure of our trade secrets or other confidential information to third
parties, our competitive position may be impaired.

We also rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or for which we
have not filed patent applications, processes for which patents are difficult to enforce and other elements of our product development processes that involve proprietary know-how, information or
technology that is not covered by patents. Although we require all of our employees to assign their inventions to us, and endeavor to execute confidentiality agreements with all of our employees,
consultants, advisors and any third parties who
have access to our proprietary know-how, information or technology, we cannot be certain that we have executed such agreements with all parties who may have helped to develop our intellectual property
or had access to our proprietary information, or that our agreements will not be breached. We cannot guarantee that our trade secrets and other confidential proprietary information will not be
disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. If we are unable to prevent disclosure
of our intellectual property to third parties, we may not be able to maintain a competitive advantage in our market, which would harm our business.

Any
disclosure to or misappropriation by third parties of our confidential proprietary information could enable competitors to quickly duplicate or surpass our technological
achievements, and erode our competitive position in our market.

Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to
protect our products.

As is the case with other human or animal pharmaceutical product companies, our success is heavily dependent on intellectual property,
particularly patents. Obtaining and enforcing patents in the human and animal health industries involves both technological and legal complexity. Therefore, obtaining and enforcing patents is costly,
time-consuming and inherently uncertain. In addition, the United States has recently enacted and implemented wide-ranging patent reform legislation. The U.S. Supreme Court has ruled on several patent
cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing
uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions
by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce
patents that we have licensed or that we might obtain in the future.

We may not be able to protect our intellectual property rights throughout the world, which could impair our
business.

Filing, prosecuting and defending patents on human and animal drug products, product candidates and non-prescription products throughout the
world would be prohibitively expensive. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export
otherwise infringing products to territories where we may obtain patent protection, but where patent enforcement is not as strong as that in the United States. These products may compete with our
products in jurisdictions where we do
not have any issued or licensed patents and any future patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of
certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to animal health products,
which could make it difficult for us to stop the infringement of our future patents, if any, or patents we have in licensed, or marketing of competing products in violation of our proprietary rights
generally. Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter
significant problems in protecting and defending our intellectual property both in the United States and abroad. Proceedings to enforce our future patent rights, if any, in foreign jurisdictions could
result in substantial cost and divert our efforts and attention from other aspects of our business.

Our business could be harmed if we fail to obtain certain registered trademarks in the United States or in
other countries.

Our registered and pending U.S. trademarks include NEONORM®, MYTESI®, NAPO®, Napo Logo®,
CANALEVIA, EQUILEVIA, JAGUAR ANIMAL HEALTH, the Jaguar Animal Health logo and MY HIV THANK YOU. We also own pending applications for the CANALEVIA mark in a number of foreign countries. We have not
yet filed applications for our company name or our logo in the U.S. During trademark registration proceedings, we may receive rejections of our trademark applications. If so, we will have an
opportunity to respond, but we may be unable to overcome such rejections. In addition, the USPTO and comparable agencies in many foreign jurisdictions may permit third parties to oppose pending
trademark applications and to seek to cancel registered trademarks. If opposition or cancellation proceedings are filed against any of our trademark applications or any registered trademarks, our
trademarks may not survive such proceedings. Moreover, any name we propose to use with our prescription drug product candidates in the United States, including CANALEVIA, must be approved by the FDA,
regardless of whether we have registered or applied to register as a trademark. The FDA typically conducts a review of proposed prescription drug product names, including an evaluation of potential
for confusion with other product names. If the FDA objects to any of our proposed proprietary product names, we may be required to expend significant additional resources in an effort to identify a
suitable substitute name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA.

We may be subject to claims that our employees, consultants or independent contractors have wrongfully used
or disclosed confidential information of third parties.

We have received confidential and proprietary information from third parties. In addition, we employ individuals who were previously employed at
other biotechnology, pharmaceutical or animal health companies. We may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise improperly
used or disclosed confidential information of these third parties or our employees' former employers. Litigation may be necessary to defend against any such claims. Even if we were successful in
defending against any such claims, such litigation could result in substantial cost and be a distraction to our management and employees.

Risks Related to Government Regulation

Even if we receive any of the required regulatory approvals for our current or future prescription drug
product candidates and non-prescription products, we will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense.

If the FDA or any other regulatory body approves any of our current or future prescription drug product candidates, or if necessary, our
non-prescription products, the manufacturing processes, clinical development, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion

and
recordkeeping for the product may be subject to extensive and ongoing regulatory requirements. These requirements could include, but are not limited to, submissions of efficacy and safety and
other post-marketing information and reports, establishment registration, and product listing, compliance with new rules promulgated under the FSMA, as well as continued compliance with cGMP, GLP and
GCP for any studies that we conduct post-approval. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with our contract
manufacturers or manufacturing processes, or failure to comply with regulatory requirements, are reportable events to the FDA and may result in, among other
things:



restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, revised labeling, or voluntary or
involuntary product recalls;

refusal by the FDA, or other regulators to approve pending applications or supplements to approved applications filed by us or our strategic
collaborators related to the unknown problems, or suspension or revocation of the problematic product's license approvals;



product seizure or detention, or refusal to permit the import or export of products; and



injunctions and/or the imposition of civil or criminal penalties.

The
FDA or other regulatory agency's policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product
candidates or require certain changes to the labeling or additional clinical work concerning safety and efficacy of the product candidates. We cannot predict the likelihood, nature or extent of
government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or
the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain
profitability, which would harm our business. In addition, failure to comply with these regulatory requirements could result in significant penalties.

In
addition, from time to time, we may enter into consulting and other financial arrangements with veterinarians, who prescribe or recommend our products, once approved. As a result, we
may be subject to state, federal and foreign healthcare and/or veterinary medicine laws. If our financial relationships with veterinarians are found to be in violation of such laws that apply to us,
we may be subject to penalties.

The issuance by the FDA of protocol concurrences for our pivotal studies does not guarantee ultimate approval
of our NADA.

We intend to seek protocol concurrences from the FDA for the pivotal trial of Canalevia that we have initiated for acute diarrhea in dogs and
for future pivotal trials in other indications. A pivotal study protocol is submitted to the FDA by a drug sponsor for purposes of obtaining FDA review of the protocol. Prior FDA review of the
protocol for a pivotal study makes it more likely that the study design will generate information the sponsor needs to demonstrate to the satisfaction of the FDA whether the drug is safe and effective
for its intended use. It creates an expectation by the sponsor that the FDA should not later alter its perspectives on these issues unless public or animal health concerns appear that were not
recognized at the time of protocol assessment. Even if the FDA issues a protocol concurrence, ultimate approval of an NADA by the FDA is not guaranteed because a final determination that the
agreed-upon protocol satisfies a specific objective, such as the demonstration of efficacy, or supports an approval decision, will be based on a complete review of all the data submitted to the FDA
including the outcome of the study for which protocol
concurrence was received. Even if we were to obtain protocol concurrence such concurrence does not guarantee that the results of the study will support a particular finding or approval of the new
drug.

Any of our current or future prescription drug product candidates or non-prescription products may cause or
contribute to adverse medical events that we would be required to report to regulatory authorities and, if we fail to do so, we could be subject to sanctions that would harm our business.

If we are successful in commercializing any of our current or future prescription drug product candidates or non-prescription products, certain
regulatory authorities will require that we report certain information about adverse medical events if those products may have caused or contributed to those adverse events. The timing of our
obligation to report would be triggered by the date we become aware of the adverse event as well as the nature of the event. We may fail to report adverse events we become aware of within the
prescribed timeframe. We may also fail to appreciate that we have become aware of a reportable adverse event, especially if such event is not reported to us as an adverse event or if it is an adverse
event that is unexpected or removed in time from the use of our products. If we fail to comply with our reporting obligations, the regulatory authorities could take action including, but not limited
to, criminal prosecution, seizure of our products, facility inspections, removal of our products from the market, recalls of certain lots or batches, or cause a delay in approval or clearance of
future products.

Legislative or regulatory reforms with respect to animal health may make it more difficult and costly for us
to obtain regulatory clearance or approval of any of our current or future product candidates and to produce, market, and distribute our products after clearance or approval is obtained.

From time to time, legislation is drafted and introduced in the U.S. Congress or other jurisdictions in which we intend to operate that could
significantly change the statutory provisions governing the testing, regulatory clearance or approval, manufacture, and marketing of regulated products. In addition, the FDA's regulations and guidance
are often revised or reinterpreted by the FDA and such other regulators in ways that may significantly affect our business and our products and product candidates. Similar changes in laws or
regulations can occur in other countries. Any new regulations or revisions or reinterpretations of existing regulations in the United States or in other countries may impose additional costs or
lengthen review times of any of our current or future products and product candidates. We cannot determine what effect changes in regulations, statutes, legal
interpretation or policies, when and if promulgated, enacted or adopted may have on our business in the future. Such changes could, among other things,
require:



changes to manufacturing methods;



additional clinical trials or testing;



new requirements related to approval to enter the market;



recall, replacement, or discontinuance of certain products; and



additional record keeping or the development of certain regulatory required hazard identification plans.

Each
of these would likely entail substantial time and cost and could harm our financial results. In addition, delays in receipt of or failure to receive regulatory clearances or
approvals for any future products would harm our business, financial condition, and results of operations.

We believe that our non-prescription products are not subject to regulation by regulatory agencies in the
United States, but there is a risk that regulatory bodies may disagree with our interpretation, or may redefine the scope of their regulatory reach in the future, which would result in additional
expense and could delay or prevent the commercialization of these products.

The FDA retains jurisdiction over all animal prescription drug products however, in many instances, the Federal Trade Commission will exercise
primary or concurrent jurisdiction with FDA on non-prescription products as to post marketing claims made regarding the product. On April 22, 1996, the FDA published a statement in the Federal
Register, 61 FR 17706, that it believes that the Dietary

Supplement
and Health Education Act ("DSHEA"), does not apply to animal health supplement products, such as our non-prescription products. Accordingly, the FDA's Center for Veterinary Medicine only
regulates those animal supplements that fall within the FDA's definition of an animal drug, animal food or animal feed additive. The Federal Food Drug and Cosmetic Act defines food as "articles used
for food or drink for man or other animals and articles used as components of any such article." Animal foods are not subject to pre-market approval and are designed to provide a nutritive purpose to
the animals that receive them. Feed additives are defined as those articles that are added to an animal's feed or water as illustrated by the guidance documents. Our non-prescription products are not
added to food, are not ingredients in food nor are they added to any animal's drinking water. Therefore, our non-prescription products do not fall within the definition of a food or feed additive. In
light of the pronouncement by the FDA that the DSHEA was not intended to apply to animals, the FDA seeks to regulate such supplements as food or food additives depending on the intended use of the
product. The intended use is demonstrated by how the article is included in a food, or added to the animals' intake (i.e., through its drinking
water). If the intended use of the product does not fall within the proscribed use making the product a food, it cannot be regulated as a food. There is no intent to make our non-prescription products
a component of an animal food, either directly or indirectly. A feed additive is a product that is added to a feed for any reason including the top dressing of an already prepared feed. Some
additives, such as certain forage, are deemed to be Generally Recognized as Safe, or GRAS, and therefore, not subject to a feed Additive Petition approval prior to use. However, the substances deemed
GRAS are generally those that are recognized as providing nutrients as a food does. We do not believe that our non-prescription products fit within this framework either. Finally, a new animal drug
refers to drugs intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease in animals. Our non-prescription Neonorm Foal and Neonorm Calf products are not intended to
diagnose, cure, mitigate, treat or prevent disease and therefore, do not fit within the definition of an animal drug. Additionally, because a previously marketed human formulation of the botanical
extract in our non-prescription products was regulated as a human dietary supplement subject to the DSHEA (and not regulated as a drug by the FDA), we do not believe that the FDA would regulate the
animal formulation used in our non-prescription products in a different manner. We do not believe that our non-prescription products fit the definition of an animal drug, food or food additive and
therefore are not regulated by the FDA at this time.

However,
despite many such unregulated animal supplements currently on the market, the FDA may choose in the future to exercise jurisdiction over animal supplement products in which
case, we may be subject to unknown regulations thereby inhibiting our ability to launch or to continue marketing our non-prescription products. In the past, the FDA has redefined or attempted to
redefine some non-prescription non-feed products as falling within the definition of drug, feed or feed additive and therefore subjected those products to the relevant regulations. We have not
discussed with the FDA its belief that the FDA currently does not exercise jurisdiction over our non-prescription products. Should the FDA assert regulatory authority over our non-prescription
products, we would take commercially reasonable steps to address the FDA's concerns, potentially including but not limited to, seeking registration for such products, reformulating such products to
further distance such products from regulatory control, or ceasing sale of such products. Further, the Animal and Plant Health Inspection Service, an agency of the USDA, may at some point choose to
exercise jurisdiction over certain non-prescription products that are not intended for production animals. We do not believe we are currently subject to such regulation, but could be in the future. If
the FDA or other regulatory agencies, such as the USDA, try to regulate our non-prescription products, we could be required to seek regulatory approval for our non-prescription products, which would
result in additional expense and could delay or prevent the commercialization of these products.

Even if Napo receives the required regulatory approvals for Napo's current or future prescription drug
product candidates and non-prescription products, Napo will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense.

If the FDA or any other regulatory body approves any of Napo's current or future prescription drug product candidates, or if necessary, Napo's
non-prescription products, the manufacturing processes, clinical development, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the
product is subject to extensive and ongoing regulatory requirements. These requirements could include, but are not limited to, submissions of efficacy and safety and other post-marketing information
and reports, establishment registration, and product listing, compliance with new rules promulgated under the FSMA, as well as continued compliance with cGMP, GLP and GCP for any studies that Napo
conducts post-approval. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with Napo's contract manufacturers or
manufacturing processes, or failure to comply with regulatory requirements, are reportable events to the FDA and may result in, among other things:



restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, revised labeling, or voluntary or
involuntary product recalls;

refusal by the FDA, or other regulators to approve pending applications or supplements to approved applications filed by Napo or Napo's
strategic collaborators related to the unknown problems, or suspension or revocation of the problematic product's license approvals;



product seizure or detention, or refusal to permit the import or export of products; and



injunctions or the imposition of civil or criminal penalties.

The
FDA or other regulatory agency's policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of Napo's product
candidates or require certain changes to the labeling or require additional clinical work concerning safety and efficacy of the product candidates. Napo cannot predict the likelihood, nature or extent
of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If Napo is slow or unable to adapt to changes in existing requirements
or the adoption of new requirements or policies, or if Napo is not able to maintain regulatory compliance, Napo may lose any marketing approval that Napo may have obtained and Napo may not achieve or
sustain profitability, which would harm Napo's business. In addition, failure to comply with these regulatory requirements could result in significant penalties.

In
addition, from time to time, Napo may enter into consulting and other financial arrangements with physicians, who prescribe or recommend Napo's products, once approved. As a result,
Napo may be subject to state, federal and foreign healthcare laws, including but not limited to anti-kickback laws. If Napo's financial relationships with physicians are found to be in violation of
such laws that apply to Napo, Napo may be subject to penalties.

The issuance by the FDA of protocol concurrences for Napo's pivotal studies does not guarantee ultimate
approval of Napo's NDA.

Napo intends to seek protocol concurrences from the FDA for future pivotal trials that Napo initiates. A pivotal study protocol is submitted to
the FDA by a drug sponsor for purposes of obtaining FDA review of the protocol. Prior FDA review of the protocol for a pivotal study makes it more likely that the study will generate information the
sponsor needs to demonstrate whether the drug is safe and effective for its intended use. It creates an expectation by the sponsor that the FDA should not later alter its perspectives on these issues
unless public concerns appear that were not recognized at the time of protocol assessment.

Even
if the FDA issues a protocol concurrence, ultimate approval of an NDA by the FDA is not guaranteed because a final determination that the agreed-upon protocol satisfies a specific objective, such
as the demonstration of efficacy, or supports an approval decision, will be based on a complete review of all the data submitted to the FDA. Even if Napo were to obtain protocol concurrence such
concurrence does not guarantee that the results of the study will support a particular finding or approval of the new drug.

Any of Napo's current or future prescription drug product candidates or non-prescription products may cause
or contribute to adverse medical events that Napo would be required to report to regulatory authorities and, if Napo fails to do so, Napo could be subject to sanctions that would harm Napo's business.

If Napo is successful in commercializing any of Napo's current or future prescription drug product candidates or non-prescription products,
certain regulatory authorities will require that Napo report certain information about adverse medical events if those products may have caused or contributed to those adverse events. The timing of
Napo's obligation to report would be triggered by the date Napo becomes aware of the adverse event as well as the nature of the event. Napo may fail to report adverse events Napo becomes aware of
within the prescribed timeframe. Napo may also fail to appreciate that Napo has become aware of a reportable adverse event, especially if it is not reported to Napo as an adverse event or if it is an
adverse event that is unexpected or removed in time from the use of Napo's products. If Napo fails to comply with Napo's reporting obligations, the regulatory authorities could take action including,
but not limited to, criminal prosecution, seizure of Napo's products, facility inspections, removal of Napo's products from the market, recalls of certain lots or batches, or cause a delay in approval
or clearance of future products.

Legislative or regulatory reforms make it more difficult and costly for Napo to obtain regulatory clearance
or approval of any of Napo's current or future product candidates and to produce, market, and distribute Napo's products after clearance or approval is obtained.

From time to time, legislation is drafted and introduced in the U.S. Congress or other jurisdictions in which Napo intends to operate that could
significantly change the statutory provisions governing the testing, regulatory clearance or approval, manufacture, and marketing of regulated products. In addition, the FDA's regulations and guidance
are often revised or reinterpreted by the FDA and such other regulators in ways that may significantly affect Napo's business and Napo's products and product candidates. Similar changes in laws or
regulations can occur in other countries. Any new regulations or revisions or reinterpretations of existing regulations in the United States or in other countries may impose additional costs or
lengthen review times of any of Napo's current or future products and product candidates. Napo cannot determine what effect changes in regulations, statutes, legal interpretation or policies, when and
if promulgated, enacted or adopted may have on Napo's business in the future. Such changes could, among other things, require:



changes to manufacturing methods;



additional clinical trials or testing;



new requirements related to approval to enter the market;



recall, replacement, or discontinuance of certain products; and



additional record keeping or the development of certain regulatory required hazard identification plans.

Each
of these would likely entail substantial time and cost and could harm Napo's financial results. In addition, delays in receipt of or failure to receive regulatory clearances or
approvals for any future products would harm Napo's business, financial condition, and results of operations.

Our failure to meet the continued listing requirements of The NASDAQ Capital Market could result in a
delisting of our common stock.

Our common stock is listed on The NASDAQ Capital Market, which imposes, among other requirements a minimum bid requirement. The closing bid
price for our common stock must remain at or above $1.00 per share to comply with NASDAQ's minimum bid requirement for continued listing. If the closing bid price for our common stock is less than
$1.00 per share for 30 consecutive business days, NASDAQ may send us a notice stating that we will be provided a period of 180 days to regain compliance with the minimum bid requirement or else
NASDAQ may make a determination to delist our common stock. Our common stock traded for less than $1.00 for 30 consecutive business days, and we received notice of this from The NASDAQ Capital Market
on May 16, 2017. Since we did not regain compliance with the minimum bid price requirement during the initial 180 calendar day grace period, on November 13, 2017, we requested and were
granted a second 180 calendar day grace period, or until May 14, 2018, to regain compliance with the minimum bid price requirement. The minimum bid price requirement will be met if our common
stock has a minimum closing bid price of at least $1.00 per share for a minimum of 10 consecutive business days during the 180 calendar day grace period. We are diligently working to evidence
compliance with the minimum bid requirement for continued listing on NASDAQ and recently filed a definitive proxy statement seeking stockholder approval to give our Board the flexibility to effect a
reverse stock split. However, we cannot assure you that a reverse stock split, if effected, will increase our stock price and have the desired effect of maintaining compliance with Nasdaq rules. The
liquidity of our capital stock may even be harmed by a reverse stock split because of the reduced number of shares that would be outstanding after the reverse stock split, particularly if the stock
price does not increase as a result of the reverse stock split.

The
delisting of our common stock from NASDAQ may make it more difficult for us to raise capital on favorable terms in the future. Such a delisting would likely have a negative effect on
the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do so. Further, if we were to be delisted from The NASDAQ Capital Market, our common
stock would cease to be recognized as covered securities and we would be subject to regulation in each state in which it offers its securities.

Moreover,
there is no assurance that any actions that we take to restore our compliance with the NASDAQ minimum bid requirement would stabilize the market price or improve the liquidity
of our common stock, prevent our common stock from falling below the NASDAQ minimum bid price required for continued listing again or prevent future non-compliance with NASDAQ's listing requirements.

We have a material weakness in our internal control over financial reporting related to the accounting for
income taxes, and if we fail to remediate the material weakness, or experience any additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls
in the future, we may not be able to accurately report our financial condition or results of operations which may adversely affect investor confidence in us and, as a result, the value of our common
stock.

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in
Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended (the "Exchange Act").

Preparing
our consolidated financial statements involves a number of complex manual and automated processes, which are dependent upon individual data input or review and require
significant management judgment. One or more of these elements may result in errors that may not be detected and could result in a material misstatement of our consolidated financial statements. If we
fail to maintain the adequacy of our internal controls over financial reporting, our business and operating results may be harmed and we may fail to meet our financial reporting obligations. If
material weaknesses in our internal control are

discovered
or occur, our consolidated financial statements may contain material misstatements and we could be required to restate our financial results.

In
connection with the audit of our financial statements as of and for the year ended December 31, 2017, we identified a material weakness in our internal control over financial
reporting, as defined in the standards established by the Public Company Accounting Oversight Board of the United States. Our management has determined that we had a material weakness in our internal
control over financial reporting as of December 31, 2017 because we did not adequately and timely review the accounting for income taxes. While the Company utilizes the assistance of an
external income tax specialist to prepare its annual tax provision, management has concluded there to be a material weakness in the design of the Company's income tax controls in that the Company's
policy that governs the data validation controls over data provided to and received from the external income tax specialist and the management review controls were not designed with appropriate levels
of precision and were not undertaken in a timely manner.

We
are enhancing our internal controls, processes and related documentation necessary to remediate our material weakness. We may not be able to complete our remediation, evaluation and
testing in a timely fashion. If we are unable to remediate this material weakness, or if we identify one or more other material weaknesses in our internal control over financial reporting, we will
continue to be unable to conclude that our internal controls are effective. If we are unable to confirm that our internal control over financial reporting is effective we could lose investor
confidence in the accuracy and completeness of our financial reports, which could cause the price of our common stock to decline.

If our shares become subject to the penny stock rules, it would become more difficult to trade our shares.

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally
equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems,
provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. If we do not retain a listing on The NASDAQ Capital Market and
if the price of our common stock is less than $5.00, our common stock will be deemed a penny stock. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise
exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny stock rules require that before effecting any transaction in a
penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the
purchaser's written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks and (iii) a signed and dated copy of a
written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock, and therefore stockholders may have
difficulty selling their shares.

The price of our common stock could be subject to volatility related or unrelated to our operations, and
purchasers of our common stock could incur substantial losses.

The trading price of our common stock could be subject to wide fluctuations in response to various factors, some of which are beyond our
control. These factors include those discussed previously in this "Risk Factors" section of this report and others, such as:



delays in the commercialization of Mytesi, Neonorm, Canalevia, Equilevia or our other current or future prescription drug product candidates
and non-prescription products;



any delays in, or suspension or failure of, our current and future studies;



announcements of regulatory approval or disapproval of any of our current or future product candidates or of regulatory actions affecting our
company or our industry;

quarterly variations in our results of operations or those of our competitors;



changes in our earnings estimates or recommendations by securities analysts;



the payment of licensing fees or royalties in shares of our common stock;



announcements by us or our competitors of new prescription drug products or product candidates or non-prescription products, significant
contracts, commercial relationships, acquisitions or capital commitments;



announcements relating to future development or license agreements including termination of such agreements;



adverse developments with respect to our intellectual property rights or those of our principal collaborators;



commencement of litigation involving us or our competitors;



any major changes in our board of directors or management;



new legislation in the United States relating to the prescription, sale, distribution or pricing of gastrointestinal health products;



product liability claims, other litigation or public concern about the safety of our prescription drug product or product candidates and
non-prescription products or any such future products;



market conditions in the human or animal industry, in general, or in the gastrointestinal health sector, in particular, including performance
of our competitors; and



general economic conditions in the United States and abroad.

In
addition, the stock market, in general, or the market for stocks in our industry, in particular, may experience broad market fluctuations, which may adversely affect the market price
or liquidity of our common stock. Any sudden decline in the market price of our common stock could trigger securities class-action lawsuits against us. If any of our stockholders were to bring such a
lawsuit against us, we could incur substantial costs defending the lawsuit and the time and attention of our management would be diverted from our business and operations. We also could be subject to
damages claims if we were found to be at fault in connection with a decline in our stock price.

No active market for our common stock exists or may develop, and you may not be able to resell our common
stock when you wish to sell them or at a price that you consider attractive or satisfactory.

Prior to our initial public offering in May 2015, there was no public market for shares of our common stock. The listing of our common stock on
The NASDAQ Capital Market does not assure that a meaningful, consistent and liquid trading market exists. Although our common stock is listed on The NASDAQ Capital Market, trading volume in our common
stock has been limited and an active trading market for our shares may never develop or be sustained. If an active market for our common stock does not develop, you may be unable to sell your shares
when you wish to sell them or
at a price that you consider attractive or satisfactory. The lack of an active market may also adversely affect our ability to raise capital by selling securities in the future, or impair our ability
to license or acquire other product candidates, businesses or technologies using our shares as consideration.

The sale of our common stock to Aspire Capital or L2 Capital may cause substantial dilution to our existing
stockholders and the sale of the shares of common stock acquired by Aspire Capital or L2 Capital could cause the price of our common stock to decline.

On June 8, 2016, we entered into a common stock purchase agreement with Aspire Capital (the "Aspire CSPA"), in which Aspire Capital
committed to purchase, at our election, up to an aggregate of $15.0 million shares of our common stock over a period of approximately 30 months (i.e., 30 months from
July 8, 2016, the effective date of the initial registration statement on Form S-1 that we filed to register the shares that we issued and may issue to Aspire pursuant to the Aspire
CSPA). On November 24, 2017, we entered into a common stock purchase agreement with L2 Capital, LLC (the "L2 Capital CSPA"), a Kansas limited liability company ("L2 Capital"), relating
to an offering of an aggregate of up to 12,100,000 shares of our common stock, of which 10,000,000 of such shares are being offered in an indirect primary offering consisting of an equity line of
credit.

Through
December 31, 2017, we have issued 6,000,000 shares of our common stock to Aspire Capital and under the Aspire CSPA and 5,100,000 shares of our common stock to L2 Capital
under the L2 Capital CSPA for gross proceeds of approximately $5.1 million and $600,000, respectively. We may ultimately sell all, some or none of the approximately $9.9 million of
common stock remaining under the Aspire CSPA to Aspire Capital and $9.4 million of common stock remaining under the L2 Capital CSPA, and Aspire Capital and L2 Capital may sell all, some or none
of our shares that it holds or comes to hold under the Aspire CSPA and L2 Capital CSPA, respectively. Sales by Aspire Capital and L2 Capital of shares acquired pursuant to the Aspire CSPA and L2
Capital CSPA, respectively, may result in dilution to the interests of other holders of our common stock. The sale of a substantial number of shares of our common stock by Aspire Capital or L2
Capital, or anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect
sales. However, we have the right to control the timing and amount of sales of our shares to Aspire Capital and L2 Capital, and the Aspire Capital CSPA and L2 Capital CSPA may be terminated by us at
any time at our discretion without any penalty or cost to us.

If securities or industry analysts do not publish research or reports about our company, or if they issue
adverse or misleading opinions regarding us or our stock, our stock price and trading volume could decline.

The trading market for our common stock depends in part on the research and reports that industry or financial analysts publish about us or our
business. We do not influence or control the reporting of these analysts. If one or more of the analysts who do cover us downgrade or provide a negative outlook on our company or our industry, or the
stock of any of our competitors, the price of our common stock could decline. If one or more of these analysts ceases coverage of our company, we could lose visibility in the market, which in turn
could cause the price of our common stock to decline.

You may be diluted by conversions of outstanding non-voting common stock and convertible notes and exercises
of outstanding options and warrants.

As of December 31, 2017, we had (i) outstanding options to purchase an aggregate of 3,444,663 shares of our common stock at a
weighted average exercise price of $1.87 per share, (ii) warrants to purchase an aggregate of 4,820,025 shares of our common stock at a weighted-average exercise price of $1.08 per share and
(iii) outstanding convertible promissory notes in an aggregate principal amount of $13,800,627, which are convertible for up to 15,549,637 shares of our common stock.

The
exercise of such options and warrants or conversion of the convertible promissory notes will result in further dilution of your investment. In addition, you may experience additional
dilution if we issue common stock in the future. As a result of this dilution, you may receive significantly less in net tangible book value than the full purchase price you paid for the shares in the
event of liquidation.

Shares eligible for future sale may adversely affect the market for our common stock.

Of the 105,325,373 voting and non-voting shares of our common stock outstanding as of December 31, 2017, approximately 59,862,017 shares
are held by "non-affiliates" and are, or will become, freely tradable without restriction pursuant to Rule 144. In addition, in the second half of 2017 and first quarter of 2018, we filed with
the SEC registration statements on Form S-3 for purposes of registering the resale of an aggregate of 65,117,092 shares of restricted common stock that were sold to certain Napo creditors and
investors in connection with the Merger and related refinancing transactions, including (i) 1,489,741 shares of voting common stock, (ii) 22,917,268 shares of voting common stock
issuable upon conversion of non-voting common stock, (iii) 1,224,875 shares of voting common stock issuable upon exercise of warrants with an exercise price of $0.08, (iv) 23,315,544
shares of voting common stock issuable upon conversion of Convertible Promissory Notes due December 30, 2019 (including interest accrued through maturity), (v) 8,510,294 shares of voting
common stock issuable upon conversion of exchangeable promissory notes (including interest accrued through maturity), and (vi) 4,000,000 shares of voting common stock issuable upon conversion
of Secured Convertible Promissory Notes due August 2, 2018. While sales of certain of these shares are subject to contractual resale restrictions, any substantial sale of our common stock
pursuant to Rule 144 or pursuant to any resale prospectus may have a material adverse effect on the market price of our common stock.

If shares of our non-voting common stock are converted into shares of our voting common stock, your voting
power will be diluted.

As of December 31, 2017, we had 62,707,480 shares of voting common stock and 42,617,893 shares of non-voting common stock outstanding.
Generally, holders of our non-voting common stock have no voting power (other than in connection with a change of control of our company) and have no right to participate in any meeting of
stockholders or to have notice thereof. However, shares of our non-voting common stock that are converted into voting common stock will have all the voting rights of the voting common stock. Shares of
our non-voting common stock are convertible into shares of our voting common stock on a one-for-one basis (i) at the option of the respective holders thereof, at any time and from time to time
on or after April 1, 2018 or (ii) automatically, without any payment of additional consideration by the holder thereof, (x) upon a transfer of such shares to any person or entity
that is neither an affiliate of Nantucket nor an investment fund, investment vehicle or other account, that is, directly or indirectly, managed or advised by Nantucket or any of its affiliates
pursuant to a sale of such stock to a third-party for cash in accordance with the terms and condition set forth in the Investor Rights Agreement, or (y) upon the subsequent release or transfer
of such shares to the registered pre-Merger legacy stockholders of Napo's outstanding shares of common stock as of July 31, 2017 (the "Napo Legacy Stockholders"). Upon conversion of any
non-voting common stock, your voting power will be diluted in proportion to the decrease in your ownership of the total outstanding voting common stock.

Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may
consider favorable and may lead to entrenchment of management.

Our third amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could delay or prevent
changes in control or changes in our management without the consent of our board of directors. These provisions to include the following:



a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a
majority of our board of directors;



no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the
resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;



the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the terms of those shares,
including preferences and voting rights, without stockholder approval, which could adversely affect the rights of our common stockholders or be used to deter a possible acquisition of our company;



the ability of our board of directors to alter our bylaws without obtaining stockholder approval;



the required approval of the holders of at least 75% of the shares entitled to vote at an election of directors to adopt, amend or repeal our
bylaws or repeal the provisions of our third amended and restated certificate of incorporation regarding the election and removal of directors;



a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our
stockholders;



the requirement that a special meeting of stockholders may be called only by the chairman of the board of directors, the chief executive
officer, the president or the board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and



advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to
be acted upon at a stockholders' meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer's own slate of directors or otherwise
attempting to obtain control of us.

These
provisions could inhibit or prevent possible transactions that some stockholders may consider attractive.

We
are also subject to the anti-takeover provisions contained in Section 203 of the Delaware General Corporation Law. Under Section 203, a corporation generally may not
engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other exceptions, the board of directors has
approved the transaction.

Our amended and restated bylaws designate the Court of Chancery of the State of Delaware as the sole and
exclusive forum for certain actions and proceedings that may be initiated by our stockholders, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us or
our directors, officers or other employees.

Our amended and restated bylaws provide that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of
Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by
any director, officer or other employee to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, (iv) any
action asserting a claim that is governed by the internal affairs doctrine or (v) any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or
bylaws. Any person purchasing or otherwise acquiring any interest in any shares of our capital stock shall be deemed to have notice of and to have consented to this provision of our amended and
restated bylaws. This choice-of-forum provision may limit our stockholders' ability to bring a claim in a judicial forum that they find favorable for disputes with us or our directors, officers or
other employees, which may discourage such lawsuits. Alternatively, if a court were to find this provision of our amended and restated bylaws inapplicable or unenforceable with respect to one or more
of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could harm our business and financial condition.

We do not intend to pay dividends on our common stock, and your ability to achieve a return on your
investment will depend on appreciation in the market price of our common stock.

We currently intend to invest our future earnings, if any, to fund our growth and not to pay any cash dividends on our common stock. Moreover,
so long as Nantucket or any of its affiliates owns any shares of our non-voting common stock, we cannot pay dividends on our common stock or non-voting common stock without obtaining the prior written
consent of Nantucket. Because we do not intend to pay dividends and may be required to obtain written consent if we were to do so,
your ability to receive a return on your investment will depend on any future appreciation in the market price of our common stock. We cannot be certain that our common stock will appreciate in price.

Our principal stockholders own a significant percentage of our voting stock and will be able to exert
significant control over matters subject to stockholder approval.

As of December 31, 2017, our executive officers, directors, holders of 5% or more of our capital stock and their respective affiliates
beneficially owned in the aggregate approximately 62% of the outstanding shares of our voting common stock. As a result of their stock ownership, these stockholders may have the ability to influence
our management and policies, and will be able to significantly affect the outcome of matters requiring stockholder approval such as elections of directors, amendments of our organizational documents
or approvals of any merger, sale of assets or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are
in your best interest as one of our stockholders.

The requirements of being a public company, including compliance with the reporting requirements of the
Exchange Act and the requirements of the Sarbanes-Oxley Act, may strain our resources, increase our costs and distract management, and we may be unable to comply with these requirements in a timely or
cost-effective manner.

Our initial public offering had a significant, transformative effect on us. Prior to our initial public offering, our business operated as a
privately-held company, and we were not required to comply with public reporting, corporate governance and financial accounting practices and policies required of a publicly-traded company. As a
publicly-traded company, we incur significant additional legal, accounting and other expenses compared to historical levels. In addition, new and changing laws, regulations and standards relating to
corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules and regulations thereunder, as well as under the Sarbanes-Oxley Act,
the JOBS Act and the rules and regulations of the SEC and The NASDAQ Capital Market, may result in an increase in our costs and the time that our board of directors and management must devote to our
compliance with these rules and regulations. These rules and regulations have substantially increased our legal and financial compliance costs and diverted management time and attention from our
product development and other business activities.

The
Sarbanes-Oxley Act requires, among other things, that we assess the effectiveness of its internal control over financial reporting annually and the effectiveness of our disclosure
controls and procedures quarterly. In particular, Section 404 of the Sarbanes-Oxley Act, or Section 404, requires us to perform system and process evaluation and testing of our internal
control over financial reporting to allow management to report on, and our independent registered public accounting firm potentially to attest
to, the effectiveness of our internal control over financial reporting. We have needed to expend time and resources on documenting our internal control over financial reporting so that we are in a
position to perform such evaluation when required. As an "emerging growth company," we expect to avail ourselves of the exemption from the requirement that our independent registered public accounting
firm attest to the effectiveness of our internal control over financial reporting under Section 404. However, we may no longer avail itself of this exemption when we cease to be an "emerging
growth company." When our independent registered public accounting firm is required to undertake an assessment of our internal control over financial reporting, the cost of our compliance with
Section 404 will correspondingly increase.

Our
compliance with applicable provisions of Section 404 requires that we incur substantial accounting expense and expend significant management time on compliance-related issues as we
implement additional corporate governance practices and comply with reporting requirements. Moreover, if we are not able to comply with the requirements of Section 404 applicable to us in a
timely manner, or if we or our independent registered public accounting firm identifies deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the
market price of our stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management
resources.

We are an "emerging growth company" and we cannot be certain if the reduced disclosure requirements
applicable to "emerging growth companies" will make our common stock less attractive to investors.

We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and we may take advantage
of certain exemptions and relief from various reporting requirements that are applicable to other public companies that are not "emerging growth companies." In particular, while we are an "emerging
growth company" (i) we will not be required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, (ii) we will be subject to reduced
disclosure obligations regarding executive compensation in our periodic reports and proxy statements and (iii) we will not be required to hold nonbinding advisory votes on executive
compensation or stockholder approval of any golden parachute payments not previously approved. In addition, the JOBS Act provides that an emerging growth company can delay its adoption of any new or
revised accounting standards, but we have irrevocably elected not to avail ourselves of this exemption and, therefore, we will be subject to the same new or revised accounting standards as other
public companies that are not emerging growth companies. In addition, investors may find our common stock less attractive if we rely on the exemptions and relief granted by the JOBS Act. If some
investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may decline and/or become more volatile.

We
may remain an "emerging growth company" until as late as December 31, 2020 (the fiscal year-end following the fifth anniversary of the closing of our initial public offering,
which occurred on May 18, 2015), although we may cease to be an "emerging growth company" earlier under certain circumstances, including (i) if the market value of our common stock that
is held by non-affiliates exceeds $700.0 million as of any June 30, in which case we would cease to be an "emerging growth company" as of December 31 of such year, (ii) if
our gross revenue exceeds $1.0 billion in any fiscal year or (iii) if we issue more than $1.0 billion of non-convertible debt over a three-year period.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our corporate headquarters are located in San Francisco, California, where we sublease 6,008 rentable square feet of office space from SeeChange
Health Management Company, Inc. Our sublease agreement expires on August 31, 2018. We believe that our existing facilities are adequate for our near-term needs. We believe that suitable
additional or alternative space would be available if required in the future on commercially reasonable terms if we are not able to convert our current sublease to a lease by August 31, 2018 on
commercially reasonable terms.

ITEM 3. LEGAL PROCEEDINGS

On July 20, 2017, a putative class action complaint was filed in the United States District Court, Northern District of California, Civil
Action No. 3:17-cv-04102, by Tony Plant (the "Plaintiff") on behalf of

shareholders
of the Company who held shares on June 30, 2017 and were entitled to vote at the 2017 Special Shareholders Meeting, against the Company and certain individuals who were directors
as of the date of the vote (collectively, the "Defendants"), in a matter captioned Tony Plant v. Jaguar Animal Health, Inc., et al., making claims arising under Section 14(a) and
Section 20(a) of the Exchange Act and Rule 14a-9, 17 C.F.R. § 240.14a-9, promulgated thereunder by the SEC. The claims allege false and misleading information provided
to investors in the Joint Proxy Statement/Prospectus on Form S-4 (File No. 333-217364) declared effective by the Commission on July 6, 2017 related to the solicitation of votes
from shareholders to approve the merger and certain transactions related thereto. The Company accepted service of the complaint and summons on behalf of itself and the United States-based director
Defendants on November 1, 2017. The Company has not accepted service on behalf of, and Plaintiff has not yet served, the non-U.S.-based director Defendants. On October 3, 2017, Plaintiff
filed a motion seeking appointment as lead plaintiff and appointment of Monteverde & Associates PC as lead counsel. That motion has been granted. Plaintiff filed an amended complaint against
the Company and the United States-based director Defendants on January 10, 2018. If the Plaintiff were able to prove its allegations in this matter and to establish the damages it asserts, then
an adverse ruling could have a material impact on the Company. However, the Company disputes the claims asserted in this putative class action case and is vigorously contesting the matter. The
Defendants intend to move to dismiss the amended complaint for failure to state a claim upon which relief may be granted.

Other
than as described above, there are currently no claims or actions pending against us, the ultimate disposition of which could have a material adverse effect on our results of
operations, financial condition or cash flows.

Our shares of common stock have been listed and traded on The NASDAQ Capital Market under the symbol "JAGX" since May 13, 2015. Prior to
that date, there was no public market for our common stock.

The
following table sets forth, for the periods indicated, the high and low intra-day sale prices in dollars on The NASDAQ Capital Market for our common stock.

Quarter Ended

High

Low

March 31, 2016

$

4.60

$

1.35

June 30, 2016

$

3.79

$

1.19

September 30, 2016

$

2.25

$

1.09

December 31, 2016

$

1.53

$

0.61

March 31, 2017

$

1.52

$

0.50

June 30, 2017

$

1.03

$

0.505

September 30, 2017

$

0.99

$

0.17

December 31, 2017

$

0.25

$

0.105

Holders

As of December 31, 2017, there were approximately 29 stockholders of record of our common stock. These figures do not reflect the
beneficial ownership or shares held in nominee name, nor do they include holders of any RSUs.

Dividend Policy

We have never paid any cash dividends on our common stock to date. We currently anticipate that we will retain all future earnings, if any, to
fund the development and growth of our business and do not anticipate paying any cash dividends for at least the next five years, if ever.

Recent Sales of Unregistered Securities

On October 30, 2017, pursuant to a debt settlement agreement dated October 30, 2017, we issued 235,134 shares of common stock to
KCSA Strategic Communications ("KCSA"), which together with the 64,866 shares of common stock previously issued on July 31, 2017, fully satisfied $60,000 in debt incurred by us for services
rendered by KCSA.

In
November and December 2017, through a series of partial redemptions pursuant to the terms of the Secured Convertible Promissory Note issued to Chicago Venture Partners, L.P.
(the "CVP Note") as disclosed in our Form 8-K filed with the SEC on July 3, 2017, we issued 4,000,000 shares of common stock to redeem $601,311.80 of the CVP Note.

In
December 2017, pursuant to a share purchase agreement dated December 27, 2017, we issued 4,010,000 shares of our common stock to certain investors for gross proceeds of
$401,000. We used net proceeds from the offering for commercialization activities relating to the launch of Mytesi, our FDA-approved human health product, and general corporate purposes.

Other
than as provided above and the shares of our common stock sold pursuant to the L2 Capital CSPA, as disclosed on our Form 8-K filed with the SEC on November 24, 2017,
there were no unregistered sales of equity securities during the period.

The
offers, sales, and issuances of the securities described above were deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the
Securities Act, Regulation D or Regulation S promulgated thereunder as transactions by an issuer not involving a public offering. The recipients of securities in each of these
transactions acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in
these transactions. Each of the recipients of securities in these transactions was an accredited or sophisticated person and had adequate access, through employment, business or other relationships,
to information about us.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read together with our financial statements and the related notes
appearing elsewhere in this report.

Overview

We are a commercial stage natural-products pharmaceuticals company focused on developing novel, sustainably derived gastrointestinal products
for both human prescription use and animals on a global basis. Our wholly-owned subsidiary, Napo Pharmaceuticals, Inc. ("Napo"), focuses on developing and commercializing proprietary human
gastrointestinal pharmaceuticals for the global marketplace from plants used traditionally in rainforest areas. Our Mytesi (crofelemer) product is approved by the U.S. Food and Drug Administration
("FDA") for the symptomatic relief of noninfectious diarrhea in adults with HIV/AIDS on antiretroviral therapy. In the field of animal health, we are focused on developing and commercializing
first-in-class gastrointestinal products for companion and production animals, foals, and high value horses.

Jaguar
was founded in San Francisco, California as a Delaware corporation on June 6, 2013. Napo formed Jaguar to develop and commercialize animal health products. Effective as of
December 31, 2013, Jaguar was a wholly-owned subsidiary of Napo, and, until May 13, 2015, Jaguar was a majority-owned subsidiary of Napo. On July 31, 2017, the merger of Jaguar
Animal Health, Inc. and Napo became effective, at which point Jaguar Animal Health's name changed to Jaguar Health, Inc. and Napo began operating as a wholly-owned subsidiary of Jaguar
focused on human health and the ongoing commercialization of, and development of follow-on indications for, Mytesi.

With
the merger effective, we believe that our newly combined company is poised to realize a number of synergistic, value adding benefitsand an expanded pipeline of
potential blockbuster human follow-on indications, a second-generation anti-secretory agent, as well as a pipeline of important animal indications for crofelemer, upon which to build global
partnerships.

Mytesi
is a novel, first-in-class anti-secretory agent which has a basic normalizing effect locally on the gut, and this mechanism of action has the potential to benefit multiple
disorders. Jaguar, through Napo, controls commercial rights for Mytesi for all indications, territories and patient populations globally. Mytesi is in development for multiple possible follow-on
indications, including cancer therapy-related diarrhea; orphan-drug indications for infants and children with congenital diarrheal disorders and short bowel syndrome (SBS); supportive care for
inflammatory bowel disease (IBD); irritable bowel syndrome (IBS); and as a second-generation anti-secretory agent for use in cholera patients. Mytesi has received orphan-drug designation for SBS.

Financial Operations Overview

We were incorporated in June 2013 in Delaware. Napo formed our company to develop and commercialize animal health products. Prior to our
incorporation, the only activities of Napo related to animal health were limited to the retention of consultants to evaluate potential strategic alternatives. We were previously a majority-owned
subsidiary of Napo. However, following the closing of our May 2015 initial public offering, we are no longer majority-owned by Napo.

On
July 31, 2017, Jaguar Animal Health, Inc., or Jaguar, completed a merger with Napo pursuant to the Agreement and Plan of Merger dated March 31, 2017 by and among
Jaguar, Napo, Napo Acquisition Corporation ("Merger Sub"), and Napo's representative (the "Merger Agreement"). In accordance with the terms of the Merger Agreement, upon the completion of the merger,
Merger Sub merged with and into Napo, with Napo surviving as our wholly-owned subsidiary. Immediately following the Napo Merger, Jaguar changed its name from "Jaguar Animal Health, Inc." to
"Jaguar Health, Inc." Napo now operates

as
a wholly-owned subsidiary of Jaguar focused on human health and the ongoing commercialization of Mytesi, a Napo drug product approved by the U.S. FDA for the symptomatic relief of noninfectious
diarrhea in adults with HIV/AIDS on antiretroviral therapy.

On
a consolidated basis, we have not yet generated enough revenue to date to achieve break even or positive cash flow, and we expect to continue to incur significant research and
development and other expenses. Our net loss and comprehensive loss was $22.0 million and $14.7 million for the years ended December 31, 2017 and 2016, respectively. As of
December 31, 2017, we had total stockholders' equity of $17.3 million and cash and cash equivalents of $520,698. We expect to continue to incur losses for the foreseeable future as we
expand our product development activities, seek necessary approvals for our product candidates, conduct species-specific formulation studies for our non-prescription products, establish API
manufacturing capabilities and begin commercialization activities. As a result, we expect to experience increased expenditures for 2018.

Revenue Recognition

We recognize revenue in accordance with ASC 605 "Revenue Recognition", subtopic ASC 605-25 " Revenue with
Multiple Element Arrangements " and subtopic ASC 605-28 " Revenue RecognitionMilestone Method ", which provides
accounting guidance for revenue recognition for arrangements with multiple deliverables and guidance on defining the milestone and determining when the use of the milestone method of revenue
recognition for research and development transactions is appropriate, respectively. For multiple-element arrangements, each deliverable within a multiple deliverable revenue arrangement is accounted
for as a separate unit of accounting if both of the following criteria are met: (1) the delivered item or items have value to the customer on a standalone basis and (2) for an
arrangement that includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in our control. If a
deliverable in a multiple element arrangement is not deemed to have a stand-alone value, consideration received for such a deliverable is recognized ratably over the term of the arrangement or the
estimated performance period, and it will be periodically reviewed based on the progress of the related product development plan. The effect of a change made to an estimated performance period and
therefore revenue recognized ratably would occur on a prospective basis in the period that the change was made.

We
recognize revenue under its licensing, development, co-promotion and commercialization agreement from milestone payments when: (i) the milestone event is substantive and its
achievability has substantive uncertainty at the inception of the agreement, and (ii) it does not have ongoing performance obligations related to the achievement of the milestone earned.
Milestone payments are considered substantive if all of the following conditions are met: the milestone payment (a) is commensurate with either our performance subsequent to the inception of
the arrangement to achieve the milestone or the enhancement of the value of the delivered item or items as a result of a specific outcome resulting from our performance subsequent to the inception of
the arrangement to achieve the milestone, (b) relates solely to past performance, and (c) is reasonable relative to all of the deliverables and payment terms (including other potential
milestone consideration) within the arrangement.

We
record revenue related to the reimbursement of costs incurred under the collaboration agreement where the company acts as principal, controls the research and development activities
and bears credit risk. Under the agreement, we are reimbursed for associated out-of-pocket costs and for certain employee costs. The gross amount of these pass-through costs is reported in revenue in
the accompanying statements of operations and comprehensive loss, while the actual expense for which we are reimbursed are reflected as research and development costs.

Determining
whether and when some of these revenue recognition criteria have been satisfied often involves assumptions and judgments that can have a significant impact on the timing and
amount of revenue we will report. Changes in assumptions or judgments or changes to the elements in an

arrangement
could cause a material increase or decrease in the amount of revenue that we report in a particular period.

Product Revenue

Sales of Neonorm Calf and Foal to distributors are made under agreements that may provide distributor price adjustments and rights of return
under certain circumstances. Beginning the three months ended December 2017, we developed sufficient sales history and pipeline visibility to recognize revenue when risk and title of products are
transferred to the distributors. Prior to this, revenue recognition depended on notification directly from the distributor that product has been sold to the distributor's customer, and deferred
revenue on shipments to distributors reflected the estimated effects of distributor price adjustments, if any, and the estimated amount of gross margin expected to be realized when the distributor
sells through product purchased from us. Prior to the three months ended December 2017, our sales to distributors were invoiced and included in accounts receivable and deferred revenue upon shipment,
and inventory was relieved and revenue recognized upon shipment by the distributor to their customer. We had Neonorm revenues of $344,194 and $117,523 for the years ended December 31, 2017 and
2016, respectively. The change resulted in the recognition of gross profit of $106,000 consisting of $163,000 in previously deferred revenue and $57,000 in related cost of revenue.

Sales
of Botanical Extract are recognized as revenue when delivered to the customer. We had Botanical Extract revenues of $78,000 and $24,000 in the years ended December 31, 2017
and 2016, respectively.

Sales
of Mytesi are recognized as revenue when the products are delivered to the wholesalers. We had Mytesi revenues of $1,062,920 and $0 in the years ended Decemer 2017 and 2016,
respectively. We record a reserve for estimated product returns under terms of agreements with wholesalers based on its historical returns experience. Reserves for returns at December 31, 2017
were immaterial. If actual returns differed from our historical experience, changes to the reserved could be required in future periods.

Collaboration Revenue

On January 27, 2017, we entered into a licensing, development, co-promotion and commercialization agreement with Elanco US Inc.
("Elanco") to license, develop and commercialize Canalevia ("Licensed Product"), our drug product candidate under investigation for treatment of acute and chemotherapy-induced diarrhea in dogs, and
other drug product formulations of crofelemer for treatment of gastrointestinal diseases, conditions and symptoms in cats and other companion animals. We granted Elanco exclusive global rights to
Canalevia, a product whose active pharmaceutical ingredient is sustainably isolated and purified from the Croton lechleri tree, for use in companion animals. Pursuant to the Elanco Agreement, Elanco
will have exclusive rights globally outside the U.S. and co-exclusive rights with us in the U.S. to direct all marketing, advertising, promotion, launch and sales activities related to the Licensed
Products. On November 1, 2017, Elanco executed its right to terminate the agreement effective January 30, 2018.

Under
the terms of the Elanco Agreement, we received an initial upfront payment of $2,548,689, inclusive of reimbursement of past product and development expenses of $1,048,689, and will
receive additional payments upon achievement of certain development, regulatory and sales milestones in an aggregate amount of up to $61.0 million payable throughout the term of the Elanco
Agreement, as well as product development expense reimbursement for any additional product development expenses incurred, and royalty payments on global sales. The $61.0 million development and
commercial milestones consist of $1.0 million for successful completion of a dose ranging study; $2.0 million for the first commercial sale of license product for acute indications of
diarrhea; $3.0 million for the first commercial sale of a license product for chronic indications of diarrhea; $25.0 million for aggregate worldwide net sales of licensed products
exceeding $100.0 million in a calendar year during the term of the agreement; and $30.0 million

for
aggregate worldwide net sales of licensed products exceeding $250.0 million in a calendar year during the terms of the agreement. Each of the development and commercial milestones are
considered substantive. No revenues associated with the achievement of the milestones has been recognized to date. The Elanco Agreement specifies that we will supply the Licensed Products to Elanco,
and that the parties will agree to set a minimum sales requirement that Elanco must meet to maintain exclusivity. The $2,548,689 upfront payment, inclusive of reimbursement of past product and
development expenses of $1,048,689 is recognized as revenue ratably over the estimated development period of one year resulting in $2,371,300 in collaboration revenue in the year ended
December 31, 2017, which is included in the statements of operations and comprehensive loss. The difference of $177,389 is included in deferred collaboration revenue in the balance sheet.

In
addition to the upfront payments, Elanco reimburses us for certain development and regulatory expenses related to our planned target animal safety study and the completion of the
Canalevia field study for acute diarrhea in dogs. These are recognized as revenue in the month in which the related expenses are incurred. We have $1,380 of unreimbursed expenses as of
December 31, 2017, which is included in Other Receivables on the balance sheet. We included the $504,771 of reimbursements in collaboration revenue in the year ended December 31, 2017,
which is included in the statements of operations and comprehensive loss. On November 1, 2017, the Company received a letter (the "Notice") from Elanco serving as formal notice of Elanco's
decision to terminate the Elanco Agreement by giving the Company 90 days written notice. Pursuant to the terms of the Elanco Agreement, termination of the Agreement became effective on
January 30, 2018, which is 90 days after the date of the Notice. On the effective date of termination of the Elanco Agreement, all licenses granted to Elanco by the Company under the
Elanco Agreement will be revoked and the rights granted thereunder revert back to the Company.

Cost of Product Revenue

Cost of product revenue expenses consist of costs to manufacture, package and distribute Neonorm related to those products that prior to
December 2017 distributors have sold through to their customers, and beginning December 2017 products sold to distributors and other customers. Cost of product revenue also includes charges associated
with inventory reserves.

We
typically use our employee and infrastructure resources across multiple development programs. We track outsourced development costs by prescription drug product candidate and
non-prescription product but do not allocate personnel or other internal costs related to development to specific programs or development compounds.

The
timing and amount of our research and development expenses will depend largely upon the outcomes of current and future trials for our prescription drug product candidates as well as
the
related regulatory requirements, the outcomes of current and future species-specific formulation studies for our non-prescription products, manufacturing costs and any costs associated with the
advancement of our line extension programs. We cannot determine with certainty the duration and completion costs of the current or future development activities.

The
duration, costs and timing of trials, formulation studies and development of our prescription drug and non-prescription products will depend on a variety of factors,
including:



the scope, rate of progress, and expense of our ongoing, as well as any additional clinical trials, formulation studies and other research and
development activities;



future clinical trial and formulation study results;



potential changes in government regulations; and



the timing and receipt of any regulatory approvals.

A
change in the outcome of any of these variables with respect to the development of a prescription drug product candidate or non-prescription product could mean a significant change in
the costs and timing associated with our development activities.

We
expect research and development expense to increase significantly as we add personnel, commence additional clinical studies and other activities to develop our prescription drug
product candidates and non-prescription products.

We
expect sales and marketing expense to increase significantly as we develop and commercialize new products and grow our existing Neonorm market. We will need to add sales and marketing
headcount to promote the sales of existing and new products.

We
expect general and administrative expense to increase in order to enable us to effectively manage the overall growth of the business. This will include adding headcount, enhancing
information systems and potentially expanding corporate facilities.

Interest Expense

Interest expense consists primarily of interest on convertible promissory notes, promisorry notes, and the loan and security agreement
(long-term debt arrangement). We also include
accretion of debt issuance costs, debt discount amortization and the accretion of an end-of-term long-term debt payment in interest expense in the statements of operations and comprehensive loss.

The following table summarizes the Company's results of operations with respect to the items set forth in such table for the years ended
December 31, 2017 and 2016 together with the change in such items in dollars and as a percentage:

Years Ended December 31,

2017

2016

Variance

Variance %

Product revenue

$

1,485,114

$

141,523

$

1,343,591

949.4

%

Collaboration revenue

2,876,072



2,876,072

N/A

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Total revenue

4,361,186

141,523

4,219,663

2981.6

%

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Operating Expenses

Cost of revenue

880,405

51,966

828,439

1594.2

%

Research and development expense

4,269,455

7,206,864

(2,937,409

)

(40.8

)%

Sales and marketing expense

3,083,739

485,440

2,598,299

535.2

%

General and administrative expense

11,247,647

5,983,238

5,264,409

88.0

%

Impairment of goodwill

16,827,000



16,827,000

N/A

Impairment of long-lived intangible assets

2,300,000



2,300,000

N/A

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Total operating expenses

38,608,246

13,727,508

24,880,738

181.2

%

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Loss from operations

(34,247,060

)

(13,585,985

)

(20,661,075

)

(152.1

)%

Interest expense, net

(1,209,632

)

(985,549

)

(224,083

)

(22.7

)%

Other income

88,549

(11,046

)

99,595

901.6

%

Change in fair value of warrants

695,341

(43,200

)

738,541

N/A

Loss on extinguishment of debt

(477,054

)

(108,000

)

(369,054

)

N/A

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Net loss before tax

(35,149,856

)

(14,733,780

)

(20,416,076

)

(138.6

)%

Income tax benefit

13,181,242



13,181,242

N/A

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Net loss and comprehensive loss

$

(21,968,614

)

$

(14,733,780

)

$

(7,234,834

)

(49.1

)%

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Revenue and Cost of Revenue

Product revenue

Our product revenue of $1,485,114 and $141,523 and related cost of revenue of $880,405 and $51,966 for the years ended December 31, 2017
and 2016 reflects revenue from the sale of our human drug Mytesi, our animal products branded as Neonorm Calf and Neonorm Foal and botanical extract .

Sales
of our human drug Mytesi are recognized as revenue when the products are delivered to the wholesalers. We had Mytesi revenues of $1,062,920 and $0 for the years ended
December 31, 2017 and 2016, respectively. We record a reserve for estimated product returns under terms of agreements with wholesalers based on its historical returns experience. Reserves for
returns at December 31, 2017 were immaterial. If actual returns differed from our historical experience, changes to the reserved could be required in future periods.

Sales
of our Neonorm Calf and Foal animal products to distributors are made under agreements that may provide distributor price adjustments and rights of return under certain
circumstances. Beginning December 2017, we developed sufficient sales history and pipeline visibility to recognize revenue when products are delivered to the distributors. Prior to December 2017,
revenue recognition depended on notification directly from the distributor that product has been sold to the distributor's customer, and deferred revenue on shipments to distributors reflected the
estimated effects of distributor price

adjustments,
if any, and the estimated amount of gross margin expected to be realized when the distributor sells through product purchased from us. Prior to December 2017, our sales to distributors
were invoiced and included in accounts receivable and deferred revenue upon shipment, and inventory was relieved and revenue recognized upon shipment by the distributor to their customer. We had
Neonorm revenues of $344,194 and $117,523 for the years ended December 31, 2017 and 2016, respectively. The change resulted in the recognition of gross profit of $106,000 consisting of $163,000
in previously deferred revenue and $57,000 in related cost of revenue.

Sales
of Botanical Extract are recognized as revenue when delivered to the customer. We had Botanical Extract revenues of $78,000 and $24,000 in the years ended December 31, 2017
and 2016, respectively. We began selling botanical extract to a distributor for use exclusively in China beginning in September 2016. Revenue increased due to an increase in kilograms of botanical
extract sold directly to customers in the years ended December 31, 2017 compared to the same period in 2016. We had no cost of product revenue associated with the botanical extract as we wrote
off the full value of the botanical extract to expense in 2014 due to uncertainty of future use and ability to sell to a customer.

Collaboration revenue

On January 27, 2017, we entered into a licensing, development, co-promotion and commercialization agreement with Elanco to license,
develop and commercialize Canalevia ("Licensed
Product"), our drug product candidate under investigation for treatment of acute and chemotherapy-induced diarrhea in dogs, and other drug product formulations of crofelemer for treatment of
gastrointestinal diseases, conditions and symptoms in cats and other companion animals. We granted to Elanco exclusive global rights to Canalevia, a product whose active pharmaceutical ingredient is
sustainably isolated and purified from the Croton lechleri tree, for use in companion animals. Pursuant to the Elanco Agreement, Elanco has exclusive rights globally outside the U.S. and co-exclusive
rights with us in the U.S. to direct all marketing, advertising, promotion, launch and sales activities related to the Licensed Products. Under the terms of the Elanco Agreement, we received an
initial upfront payment of $2,548,689 and will receive additional payments upon achievement of certain development, regulatory and sales milestones in an aggregate amount of up to $61.0 million
payable throughout the term of the Elanco Agreement, as well as product development expense reimbursement, and royalty payments on global sales. The Elanco Agreement specifies that we will supply the
Licensed Products to Elanco, and that the parties will agree to set a minimum sales requirement that Elanco must meet to maintain exclusivity. Elanco will reimburse us for certain development and
regulatory expenses related to our planned target animal safety study and the completion of our field study of Canalevia for acute diarrhea in dogs. The $2,548,689 total of the upfront payment and
expense reimbursement is recognized as collaboration revenue ratably over the estimated development period of one year resulting in $2,371,300 in collaboration revenue in the year ended
December 31, 2017. In addition to the upfront payments, Elanco reimburses us for certain development and regulatory expenses related to our planned target animal safety study and the completion
of the Canalevia field study for acute diarrhea in dogs. These are recognized as revenue in the month in which the related expenses are incurred. We included $504,771 of reimbursements in
collaboration revenue in the year ended December 31, 2017.

The following table presents the components of research and development expense for the years ended December 31, 2017 and 2016 together
with the change in such components in dollars and as a percentage:

Years Ended
December 31,

2017

2016

Variance

Variance %

R&D:

Personnel and related benefits

$

2,162,251

$

2,546,220

$

(383,969

)

(15.1

)%

Materials expense and tree planting

248,010

113,394

$

134,616

118.7

%

Travel, other expenses

189,622

400,846

$

(211,224

)

(52.7

)%

Clinical and contract manufacturing

439,071

2,254,122

$

(1,815,051

)

(80.5

)%

Stock-based compensation

216,932

181,489

$

35,443

19.5

%

Other

1,013,569

1,710,793

$

(697,224

)

(40.8

)%

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Total

$

4,269,455

$

7,206,864

$

(2,937,409

)

(40.8

)%

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Our
research and development expense decreased $2,937,409 from $7,206,864 in the year ended December 31, 2016 to $4,269,455 for the same period in 2017. Personnel and related
benefits decreased $383,969 from $2,546,220 in the year ended December 31, 2016 to $2,162,251 in the same period in 2017 due to an increase of $148,343 employee leasing chargebacks to Napo for
services rendered in the seven months ended July 31, 2017 over the year ended December 31, 2016 with the remainder of the decrease due to changes in headcount personnel and related
salaries and benefits year over year. Travel expenses decreased $211,224 from $400,846 in the year ended December 31, 2016 to $189,622 in the same period in 2017 due primarily to a decrease in
clinical activity. Clinical trial work decreased and contract manufacturing work was completed in Q1 2016 resulting in a reduction of expense of $1,815,051 from $2,254,122 in the year ended
December 31, 2016 to $439,071 in the same period in 2017. Clinical expenses decreased $1,400,746 from $1,921,863 in the year ended December 31, 2016 to $521,117 in the same period in
2017, and contract manufacturing expense decreased $414,305 due to the completion of the manufacturing setup in Italy in the first quarter of 2016 and due to some related contract adjustments that
arose in the second quarter of 2017. Stock-based compensation increased $35,443 from $181,489 in the year ended December 31, 2016 to $216,932 in the same period in 2017 primarily due to an
increase in the number of outstanding option grants year over year. Other expenses, consisting primarily of consulting and formulation expenses, decreased $697,224 from $1,710,793 in the year ended
December 31, 2016 to $1,013,569 in the same period in 2017. Consulting expenses decreased $540,559 from $1,047,285 in the year ended December 31, 2016 to $506,726 in the same period in
2017 consistent with the decrease in contractor utilization to assist in our clinical trials and in chemistry, manufacturing and controls ("CMC") activities. Formulation expenses decreased $154,180
from $420,143 in the year ended December 31, 2016 to $265,963 for the same period in 2017 due to an decrease in work needed for clinical operations. We plan to increase our research and
development expense as we continue developing our drug candidates. Our research and development expenses include $1,014,820 of Napo research and development expenses for the five month period from the
July 31, 2017 acquisition.

We
continued to increase our level of support for the reforestation of croton lechleri trees in South America, which is reflected in an increase in spend of $134,616 from $113,393 in the
year ended December 31, 2016 to $248,010 in the same period in 2017. We value and take to heart the responsibility to replenish trees consumed in order to extract the raw material to
manufacture our primary commercial product and the drug product for use in clinical trials.

The following table presents the components of sales and marketing expense for the years ended December 31, 2017 and 2016 together with
the change in such components in dollars and as a percentage:

Years Ended
December 31,

2017

2016

Variance

Variance %

S&M:

Personnel and related benefits

$

753,944

$

198,100

$

555,844

280.6

%

Stock-based compensation

32,325

73,679

(41,354

)

(56.1

)%

Direct Marketing Fees

1,491,869

116,417

1,375,452

1181.5

%

Other

805,601

97,244

708,357

728.4

%

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Total

$

3,083,739

$

485,440

$

2,598,299

535.2

%

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Our
sales and marketing expense increased $2,598,299 from $485,440 in the year ended December 31, 2016 to $3,083,739 in the same period in 2017. Personnel and related benefits
increased $555,844 from $198,100 in the year ended December 31, 2016 to $753,944 in the same period in 2017 due to headcount changes year over year, net of $42,703 in employee leasing
chargebacks to Napo for services rendered in the seven months ended July 31, 2017 over the year ended December 31, 2016. Stock based compensation expense decreased $41,354 from $73,679
in the year ended December 31, 2016 to $32,325 in the same period in 2017 due to new options granted at a much lower fair value due to a lower strike price and a lower fair market value. Direct
marketing and sales expense increased $1,375,452 from $116,417 in the year ended December 31, 2016 to $1,491,869 for the same period in 2017 due to an increase in marketing programs to promote
the Napo Mytesi product. Other expenses, consisted primarily of travel expense, consulting expense and royalty expense, which collectively increased $708,357 from $97,244 in the year ended
December 31, 2016 to $805,601 in the same period in 2017. We plan to expand sales and marketing spend to promote our Mytesi products. Sales and marketing expenses include $2,519,701 in Napo
sales and marketing expenses for the five month period from the July 31, 2017 acquisition.

General and Administrative Expense

The following table presents the components of general and administrative expense for the years ended December 31, 2017 and 2016 together
with the change in such components in dollars and as a percentage:

Our
general and administrative expenses increased $5,264,409 from $5,983,238 in the year ended December 31, 2016 to $11,247,647 for the same period in 2017 due primarily to
$3,521,751 in merger related expenses incurred in the year ended December 31, 2017, including $858,103 in consulting services for a fairness opinion, $101,119 in other consulting services,
$2,202,799 in estimated legal fees and $136,529 in estimated audit fees, and $223,201 in estimated printer and filing fees. Personnel and related benefits decreased $294,677 from $2,104,809 in the
year ended December 31, 2016 to $1,810,132 in the same period in 2017 due to an increase of $60,232 in employee leasing chargebacks for services rendered in the seven months ended
July 31, 2017 versus the year ended December 31, 2016, a decrease in severance expense of $105,425 from $105,425 in the year ended December 31, 2016 to $0 in the same
period in 2017, with the remainder of the decrease due to changes in headcount personnel and related salaries year over year, primarily at high paying executive levels. Personnel and related benefits
for the year ended December 31, 2017 include $321,313 for Napo's personnel and related benefits for the five months from the July 31, 2017 date of acquisition. Stock-based compensation
increased $102,597 from $462,759 in the year ended December 31, 2016 to $565,356 in the same period in 2017 due primarily to expense associated with new grants to existing employees. Public
company expenses increased $486,376 from $291,253 in the year ended December 31, 2016 to $777,629 in the same period in 2017 due primarily to the $223,201 in merger related printer expenses. In
addition to the $136,529 of audit related merger fees discussed above, our annual, quarterly and other audit and accounting fees increased by another $292,737 resulting in an aggregate $429,266
increase in accounting fees from $311,693 in the year ended December 31, 2016 to $740,959 in the same period in 2017. In addition to the $2,202,799 of legal related merger fees, our general
corporate and public securities legal fees increased an additional $435,682 resulting in an aggregate increase of $2,638,481 in legal fees from $824,288 in the year ended December 31, 2016 to
$3,462,769 in the same period in 2017. In addition to the $858,103 fairness opinion consulting and $101,119 in other consulting merger related fees, our non-merger related consulting expenses
increased by $106,663 resulting in aggregate increase of $1,095,885 from $374,852 in the year ended December 31, 2016 to $1,470,737 in the same period in 2017. Rent and lease expense decreased
$47,712 from $384,147 in the year ended December 31, 2016 to $336,435 in the same period in 2017 due primarily to an increase of $24,771 in employee leasing chargebacks to Napo for space used
in connection with our employees providing services to Napo during the seven months ended July 31, 2017, offset by additional parking and apartment rent year over year. Other expenses,
including warrant expense, insurance costs, office and facilities expenses increased $860,658 from $919,371 in the year ended December 31, 2016 to $1,780,029 in the same period in 2017
primarily due to $23,000 of expense related to warrant exercises, $26,629 increase in conferences and meetings, a $26,210 increase in IT expenses, net of a reduction of $30,906 in bank and credit card
fees, net of a reduction of $109,381 in recruiting fees. Other expenses for the year ended December 31, 2017 include $901,009 for Napo's other general and administrative expenses for the five
months from the July 31, 2017 date of acquisition. We expect to incur additional general and administrative expense as a result of operating as a public company and as we grow our business,
including expenses related to compliance with the rules and regulations of the SEC, additional insurance expenses, investor relations activities and other administrative and professional services.
General and administrative expenses include $1,750,751 in Napo sales and marketing expenses for the five month period from the July 31, 2017 acquisition.

Liquidity and Capital Resources

Sources of Liquidity

We had an accumulated deficit of $62.4 million as a result of incurring net losses since our inception as we have not generated enough
revenue to cover costs and expenses through the current fiscal year. Our net loss and comprehensive loss was $22.0 million for the year ended December 31, 2017. We expect to continue to
incur additional losses through the end of fiscal year 2017 and into future years due to expected significant expenses for toxicology, safety and efficacy clinical trials of our products and product
candidates, for establishing contract manufacturing capabilities, and for the commercialization of one or more of our product candidates, if approved.

We
had cash and cash equivalents of $520,698 as of December 31, 2017. We do not believe our existing cash and cash equivalents will be sufficient to meet our anticipated cash
requirements for the next 12 months. Our independent registered public accounting firm has included an explanatory paragraph in its audit report included in our Form 10-K for the years
ended December 31, 2017 and 2016 regarding our assessment of substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that may
result from the outcome of this uncertainty.

To
date, we have funded our operations primarily through the issuance of equity securities, short-term convertible promissory notes, and long-term debt, in addition to sales of our
commercial products:



In 2013, we received $400 from the issuance of 2,666,666 shares of common stock to our parent Napo Pharmaceuticals, Inc. We also
received $519,000 of net cash from the issuance of convertible promissory notes in an aggregate principal amount of $525,000. These notes were all converted to common stock in 2014.



In 2014, we received $6.7 million in proceeds from the issuance of convertible preferred stock. Effective as of the closing of our
initial public offering, the 3,015,902 shares of outstanding convertible preferred stock were automatically converted into 2,010,596 shares of common stock. Following our initial public offering,
there were no shares of preferred stock outstanding.



In 2014, we received $1.1 million from the issuance of convertible promissory notes in an aggregate principal amount of
$1.1 million. These notes were converted to common stock upon the effectiveness of the initial public offering in May of 2015. In August 2014, we entered into a standby line of credit with an
individual, who is an accredited investor, for up to $1.0 million. To date, we had not made any drawdowns under this facility. Also, in October of 2014, as amended and restated in December
2014, we entered into a $1.0 million standby bridge loan which was repaid in 2015.



In 2015, we received $1.25 million in exchange for $1.25 million of convertible promissory notes, of which $1.0 million
was converted to common stock in 2015, and $100,000 was repaid in 2015. The remaining $150,000 remains outstanding.



In May 2015, we received net proceeds of $15.9 million upon the closing of our initial public offering, gross proceeds of
$20.0 million (2,860,000 shares at $7.00 per share) net of $1.2 million of underwriting discounts and commissions and $3.3 million of offering expenses, including
$0.4 million of non-cash expense. These shares began trading on The NASDAQ Capital Market on May 13, 2015.



In 2015, we received net proceeds of $5.9 million from the issuance of long-term debt. We entered into a loan and security agreement
with a lender for up to $8.0 million, which provided for an initial loan commitment of $6.0 million. Under the loan agreement we are required to maintain $4.5 million of the
proceeds in cash, which amount may be reduced or eliminated on the achievement of certain milestones. An additional $2.0 million is available contingent on the achievement of certain further
milestones. The agreement has a term of three years, with interest only payments through February 29, 2016. Thereafter, principal and interest payments will be made with an interest rate of
9.9%. Additionally, there will be a balloon interest payment of $560,000 on August 1, 2018. This amount is being recognized over the term of the loan agreement and the effective interest rate,
considering the balloon payment, is 15.0%. Our proceeds are net of a $134,433 debt discount under the terms of the agreement.



In 2014 and 2015, we received $24,000 and $531,000, respectively, in cash from sales of Neonorm to distributors.



In 2015, we received approximately $13,000 in proceeds from the exercise of stock options.

In 2016, we received net proceeds of $4.1 million upon the closing of our follow-on public offering, reflecting gross proceeds of
$5.0 million (2.0 million shares at $2.50 per share) net of $373,011 of underwriting discounts and commissions and $496,887 of offering expenses.



In June 2016, we entered into the CSPA with a private investor. Under the terms of the agreement, we may sell up to $15.0 million in
common stock to the investor during the approximately 30-month term of the agreement. Upon execution of the CSPA, we sold 222,222 shares of our common stock to the investor at $2.25 per share for net
proceeds of $448,732, reflecting gross proceeds of $500,000 and offering expenses of $51,268. In consideration for entering into the CSPA, we issued 456,667 shares of our common stock to the investor.
We issued 1,348,601 shares in exchange for net proceeds of $2,122,570, reflecting gross proceeds of $2,176,700 net of $54,130 offering expenses under the CSPA in the year ended December 31,
2016. And in the nine months ended September 30, 2017, we sold another 3,972,510 shares of the Company's common stock in exchange for $2,387,085 of gross cash proceeds. Of the
$15.0 million available under the CSPA, we have received $5,063,785 from the sale of 6,000,000 shares of our common stock as of December 31, 2017.



In October 2016, we entered into a Common Stock Purchase Agreement with an existing private investor. Upon execution of the agreement we sold
170,455 shares of our common stock in exchange for $150,000 in cash proceeds.



On November 22, 2016, we entered into a Securities Purchase Agreement, or the 2016 Purchase Agreement, with certain institutional
investors, pursuant to which we sold securities to such investors in a private placement transaction, which we refer to herein as the 2016 Private Placement. In the 2016 Private Placement, we sold an
aggregate of 1,666,668 shares of our common stock at a price of $0.60 per share for gross proceeds of approximately $1.0 million. The investors in the 2016 Private Placement also received
(i) warrants to purchase up to an aggregate of 1,666,668 shares of our common stock, at an exercise price of $0.75 per share, or the Series A Warrants, (ii) warrants to purchase
up to an aggregate 1,666,668 shares of our common stock, at an exercise price of $0.90 per share, or the Series B Warrants, and (iii) warrants to purchase up to an aggregate 1,666,668
shares of our common stock, at an exercise price of $1.00 per share, or the Series C Warrants and, together with the Series A Warrants and the Series B Warrants, the 2016
Warrants.



On January 27, 2017, we entered into a licensing, development, co-promotion and commercialization agreement with Elanco to license,
develop and commercialize Canalevia, our drug product candidate under investigation for treatment of acute and chemotherapy-induced diarrhea in dogs, and other drug product formulations of crofelemer
for treatment of gastrointestinal diseases, conditions and symptoms in cats and other companion animals. The Elanco Agreement grants Elanco exclusive global rights to Canalevia, a product whose active
pharmaceutical ingredient is sustainably isolated and purified from the Croton lechleri tree, for use in companion animals. Pursuant to the Elanco Agreement, Elanco will have exclusive rights globally
outside the U.S. and co-exclusive rights with us in the U.S. to direct all marketing, advertising, promotion, launch and sales activities related to the Licensed Products.



Under the terms of the Elanco Agreement, we received an initial upfront payment of $2,548,689 inclusive of reimbursement of past product and
development expenses of $1,048,689 and we will receive additional payments upon achievement of certain development, regulatory and sales milestones in an aggregate amount of up to $61.0 million
payable throughout the term of the Elanco Agreement, as well as product development expense reimbursement, and royalty payments on global sales. The Elanco Agreement specifies that we will supply the
Licensed Products to Elanco, and that the parties will agree to set a minimum sales requirement that Elanco must meet to maintain exclusivity. Elanco will also reimburse us for Canalevia-related
expenses, including reimbursement for Canalevia-related expenses in Q4 2016, certain development and regulatory

expenses
related to our planned target animal safety study and the completion of our field study of Canalevia for acute diarrhea in dogs. On November 1, 2017, Elanco notified the Company of its
intention to terminate the Elanco Agreement, effective January 30, 2018.



On March 31, 2017, we entered into a merger agreement with Napo, pursuant to which we are required, among other things, to issue
approximately 69,299,346 shares of our common stock and non-voting common stock to Napo creditors, noteholders, holders of Napo warrants, options or restricted stock units, and Invesco upon
consummation of the merger.



On June 28, 2017, we closed a private investment in public entities, or PIPE, with a member of our board of directors. We received gross
proceeds of $50,000 in exchange for 100,000 shares of our common stock.



On June 29, 2017, we issued a secured convertible promisorry note to a lendor in the aggregate principal amount of $2,155,000 less an
original issue discount of $425,000 and less $30,000 to cover the lender's legal fees for net cash proceeds of $1,700,000. Interest on the outstanding balance will be paid 8% per annum from the
purchase price date until the balance is paid in full. All interest calculations are computed on the basis of a 360-day year comprised of twelve (12) thirty (30) day months compounded
daily and payable in accordance with the terms of the Note. All principal and interest on the debt is due in full on August 2, 2018.



On July 13, 2017, we closed a PIPE, with an investor. We received gross proceeds of $50,000 in exchange for 100,000 shares of our common
stock.



On July 31, 2017, as part of the merger with Napo, we sold 3,243,243 shares of our common stock to an investor in exchange for
$1,000,000 in cash and $2,000,000 in a direct payoff of Napo debt.



On July 31, 2017, we entered into Warrant Exercise Agreements, or Exercise Agreements, with certain holders of Series C Warrants,
or the Exercising Holders, which Exercising Holders own, in the aggregate, Series C Warrants exercisable for 908,334 shares of the Company's common stock. Pursuant to the Exercise Agreements,
the Exercising Holders and the Company agreed that the Exercising Holders would exercise their Series C Warrants with respect to 908,334 shares of common stock underlying such Series C
Warrants for a reduced exercise price equal to $0.40 per share. The Company received aggregate gross proceeds of approximately $363,334 from the exercise of the Series C Warrants by the
Exercising Holders.



On October 3, 2017, we issued 21,250,000 shares of our common stock in exchange for net proceeds of $3,494,173 upon the closing of our
follow-on public offering, consisting of gross proceeds of $4,250,000 net of $297,500 of underwriting discounts and commissions and $458,377 of offering expenses. On November 1, 2017, we issued
an additional 437,500 shares for net proceeds of $81,331 consisting of gross proceeds of $87,500 net of $6,125 of underwriting discounts and commissions and $1,500 in expenses.



On November 24, 2017, we entered into a share purchase agreement with an investor wherein during the year ended December 31, 2017
we received net proceeds of $555,000 in exchange for 5,100,000 shares of our common stock.



On December 8, 2017, we issued a secured promisorry note to an existing lendor in the aggregate principal amount of $1,587,500 less an
original issue discount of $462,500 and less $25,000 to cover the lender's legal fees for net cash proceeds of $1,100,000. Interest on the outstanding balance will be paid 8% per annum from the
purchase price date until the balance is paid in full. All interest calculations are computed on the basis of a 360-day year comprised of twelve (12) thirty (30) day months compounded
daily and payable in accordance with the terms of the Note. All principal and interest on the debt is due in full on September 8, 2018.

On December 28 and 29, 2017, we entered into a series of PIPE financings with existing investors wherein we received $401,000 in
exchange for 4,010,000 shares of our common stock.

We
expect our expenditures will continue to increase as we continue our efforts to develop animal health products, expand our commercially available Neonorm product and continue
development of our pipeline in the near term. We do not believe our current capital is sufficient to fund our operating plan through December 2018. We will need to seek additional funds through public
or private equity or debt financings or other sources, such as strategic collaborations. Such financing may result in dilution to stockholders, imposition of debt covenants and repayment obligations
or other restrictions that may affect our business. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient
funds for our current or future operating plans. We may also not be successful in entering into partnerships that include payment of upfront licensing fees for our products and product candidates for
markets outside the United States, where appropriate. If we do not generate upfront fees from any anticipated arrangements, it would have a negative effect on our operating plan. We plan to finance
our operations and capital funding needs through equity and/or debt financing as well as revenue from future product sales. However, there can be no assurance that additional funding will be available
to us on acceptable terms on a timely basis, if at all, or that we will generate sufficient cash from operations to adequately fund operating needs or ultimately achieve profitability. If we are
unable to obtain an adequate level of financing needed for the long-term development and commercialization of our products, we will need to curtail planned activities and reduce costs. Doing so will
likely have an adverse effect on our ability to execute on our business plan. These matters raise substantial doubt about the ability of the Company to continue in existence as a going concern within
one year after issuance date of the financial statements.

Cash Flows for Year Ended December 31, 2017 Compared to the Year Ended December 31, 2016

The following table shows a summary of cash flows for the years ended December 31, 2017 and 2016:

Years Ended December 31,

2017

2016

Total cash used in operations

$

(9,824,940

)

$

(14,413,718

)

Total cash (used in)/ provided by investing activities

(1,285,215

)

2,384,500

Total cash provided by financing activities

10,679,874

5,282,666

​

​

​

​

​

​

​

​

$

(430,281

)

$

(6,746,552

)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Cash Used in Operating Activities

During the year ended December 31, 2017, cash used in operating activities of $9,824,940 resulted from our net loss of
$22.0 million, adjusted by non-cash accretion of end of term payment, debt discounts and debt issuance costs of $600,000, stock-based compensation of $815,000, change in fair value of modified
warrants of $23,000, reduction in the fair value of warrant liability of $695,000, loss on extinguishment of debt of $477,000, stock issued in the merger in exchange for services $151,000, common
stock issued in exchange for services rendered of $44,000, depreciation and amortization expenses of $584,000, interest paid on the conversion of debt to equity of $79,000, impairment of goodwill of
$16.8 million, impairment of long-lived intangible assets of $2,300,000 deferred income benefit of $13.2 million, and gain on revaluation of derivative liability of $9,000, net of
changes in operating assets and liabilities of $4.1 million.

During
the year ended December 31, 2016, cash used in operating activities of $14.4 million resulted from our net loss of $14.7 million, offset by non-cash accretion
of end of term payment, debt discounts and debt issuance costs of $510,000, stock-based compensation of $718,000, loss on extinguishment of debt of $108,000, depreciation expense of $47,000, net of
changes in operating assets and liabilities of $1.1 million.

During the year ended December 31, 2017, cash used in investing activities of $1,285,215 consisted of cash used in acquisition, net of
cash acquired of $1.6 million offset by $272,000 of release of restricted cash that resulted from principal payments of our long-term debt.

During
the year ended December 31, 2016, cash provided by investing activities of $2.4 million primarily consisted of $2.5 million of a release of restricted cash
that resulted from a reduction in our long-term debt, net of $104,000 in purchases of property and equipment.

Cash Provided by Financing Activities

During the year ended December 31, 2017, cash used in financing activities of $10,679,874 consisted of $3.5 million of net
proceeds received in a follow-on registration statement, $555,000 and $401,000 received in separate PIPE financings, $2.3 million in net proceeds received in the CSPA, $94,000 in net proceeds
received in a PIPE financing, $1.7 million received in the issuance of convertible debt, $1.1 million received in the issuance of non-convertible debt, $3.0 million received from
the sale of common stock in the merger, and $363,000 received in the exercise of certain warrants, offset by $2.4 million in principal payments of our long-term debt.

During
the year ended December 31, 2016, cash provided by financing activities of $5.3 million primarily consisted of $4.1 million in net cash received in our
secondary public offering, net of commissions and certain offering expenses, $2.6 million in net proceeds received in the CSPA, $150,000 in net proceeds from an additional common stock purchase
agreement, and $903,000 in net cash received in the sale of common stock to various investors as part of the 2016 Private Placement offset by $2.5 million in principal payments on our long-term
debt.

Description of Indebtedness

Convertible Notes and Warrants

Convertible notes at December 31, 2017 and December 31, 2016 consist of the following:

Interest
expense on the convertible notes for the years ended December 31, 2017 and 2016 follows:

Years Ended
December 31,

2017

2016

February 2015 convertible note nominal interest

$

18,000

$

18,049

June 2017 convertible note nominal interest

85,581



June 2017 convertible note accretion of debt discount

247,175



Napo convertibles note nominal interest

283,520



​

​

​

​

​

​

​

​

Total interest expense on convertible debt

$

634,276

$

18,049

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Interest
payable on all convertible notes was $642,405 and $94,048 at December 31, 2017 and 2016.

February 2015 Convertible Note

In February 2015, we issued convertible promissory notes to two accredited investors in the aggregate principal amount of $250,000. These notes
were issued pursuant to the convertible note purchase agreement dated December 23, 2014. In connection with the issuance of the notes, we issued the lenders warrants to purchase 22,320 shares
at $5.60 per share, which expire December 31, 2017. Principal and interest of $103,912 was paid in May 2015 for $100,000 of these notes. We analyzed the beneficial nature of the conversion
terms and determined that a BCF existed because the effective conversion price was less than the fair value at the time of the issuance. We calculated the value of the BCF using the intrinsic method.
A BCF for the full face value was recorded as a discount to the notes payable and to additional paid-in capital. The full amount of the BCF was amortized to interest expense by the end of June 2015.

The
remaining outstanding note of $150,000 is payable to an investor at an effective simple interest rate of 12% per annum, and was due in full on July 31, 2016. On
July 28, 2016, we entered into an amendment to delay the repayment of the principal and related interest under the terms of the remaining note from July 31, 2016 to October 31,
2016.

On
November 8, 2016, we entered into an amendment to extend the maturity date of the remaining note from October 31, 2016 to January 1, 2017. In exchange for the
extension of the maturity date, on November 8, 2016, our board of directors granted the lender a warrant to purchase 120,000 shares of our common stock for $0.01 per share. The warrant is
exercisable at any time on or before July 28, 2022, the expiration date of the warrant. The amendment and related warrant issuance resulted in the Company treating the debt as having been
extinguished and replaced with new debt for accounting purposes due to meeting the 10% cash flow test.

* Extinguishment of debt

On January 31, 2017, we entered into another amendment to extend the maturity date of the remaining note from January 1, 2017 to
January 1, 2018. In exchange for the extension of the maturity date, on January 31, 2017, our board of directors granted the lender a warrant to purchase 370,916 shares of our common
stock for $0.51 per share. The warrant is exercisable at any time on or before January 31, 2019, the expiration date of the warrant. The amendment and related warrant issuance resulted in our
treating the debt as having been extinguished and replaced with new debt for accounting purposes due to meeting the 10% cash flow test. We calculated a loss on the extinguishment of debt of $207,713,
or the equivalent to the fair value of the warrants granted, which is included in loss on extinguishment of debt in the statements of operations and comprehensive loss in the year ended
December 31, 2017. The debtor agreed to accept our common stock as payment for all outstanding principal and interest in March of 2018.

The
$150,000 note is included in notes payable in current liabilities on the balance sheet. We have unpaid accrued interest of $51,929 and $33,929, which is included in accrued expenses
on the balance sheet

as
of December 31, 2017 and December 31, 2016, respectively, and incurred interest expense of $18,000 and $18,049 in the years ended December 31, 2017 and 2016 which are included
in interest expense in the statement of operations and comprehensive loss.

June 2017 Convertible Note

On June 29, 2017, we issued a secured convertible promisorry note ("Note") to a lendor in the aggregate principal amount of $2,155,000
less an original issue discount of $425,000 and less $30,000 to cover the lender's legal fees for net cash proceeds of $1,700,000. Interest on the outstanding balance will be paid 8% per annum from
the purchase price date until the balance is paid in full. All interest calculations are computed on the basis of a 360-day year comprised of twelve (12) thirty (30) day months
compounded daily and payable in accordance with the terms of the Note. All principal and interest on the debt is due in full on August 2, 2018. We have accrued interest of $6,180 at
December 31, 2017 which is included in accrued expenses on the balance sheet, and incurred nonmal
interest of $85,581 in interest expense in the year ended December 31, 2017 which is included in interest expense in the statement of operations and comprehensive loss. We recorded debt
discount accretion of $247,175 in interest expense for the year ended December 31, 2017 which is included in the statement of operations and comprehensive loss. The lender has the right to
convert all or any portion of the outstanding balance into our common stock at $1.00 per share. The Note provides the lender with an optional monthly redemption that allows for the monthly payment of
up to $350,000 at the creditor's option.

The
Note provides for two separate features that result in a derivative liability:

1.

Repayment
of mandatory default amount upon an event of defaultupon the occurrence of any event of default, the lendor may accelerate the Note resulting
in the outstanding balance becoming immediately due and payable in cash; and

2.

Automatic
increase in the interest rate on and during an event of defaultduring an event of default, the interest rate will increase to the lesser of 17%
per annum or the maximum rate permitted under applicable law.

We
computed fair values at June 30, 2017 of $15,000 and $5,000 for the repayment and the interest rate increase feature, respectively, using the Binomial Lattice Model, which was
based on the generalized binomial option pricing formula. The $20,000 combined fair value was carved out and is included as a derivative liability on the Balance Sheet. The derviatives were revalued
at December 31, 2017 using the same Model resulting in a combined fair value of $11,000. The $9,000 gain is included in other income and expense in the statement of income and comprehensive
income.

The
balance of the note payable of $1,351,264, consisting of the $2,155,000 face value of the note less note discounts and debt issuance costs of $509,000, less the $20,000 derivative
liability, less principal payments of $521,911, plus the accretion of the debt discount and debt issuance costs of $247,175 in the year ended December 31, 2017, is included in convertible notes
payable in current liabilities on the balance sheet.

Interest
payable on the accumulation of all convertible notes was $118,228 and $94,048 at December 31, 2017 and 2016.

Napo convertible notes

In December 2016, our Napo subsidiary entered into a note purchase agreement which provided for the sale of up to $12,500,000 face amount of
notes and issued convertible promissory notes (the Napo December 2016 Notes) in the aggregate face amount of $2,500,000 to three lenders and received proceeds of $2,000,000 which resulted in $500,000
of original issue discount. In July 2017, Napo issued convertible promissory notes (the Napo July 2017 Notes) in the aggregate face amount of $7,500,000 to four lenders and received proceeds of
$6,000,000 which resulted in $1,500,000 of original issue discount. The Napo

December
2016 Notes and the Napo July 2017 Notes mature on December 30, 2019 and bear interest at 10% with interest due each six-month period after December 30, 2016. On June 30,
2017, the accrued interest of $125,338 was added to principal of the Napo December Notes, and the new principal balance became $2,625,338. Interest may be paid in cash or in the stock of Jaguar per
terms of the note purchase agreement. In each one year period beginning December 30, 2016, up to one-third of the principal and accrued interest on the notes may be converted into the common
stock of the merged entity at a conversion price of $0.925 per share. We assumed these convertible notes at fair value of $11,161,000 as part of the Napo Merger. The fair value was calculated using
the Binomial Lattice Model using the following criteria: stock price of $0.5893, expected term of 2.42 years, conversion price of $0.925, volatility of 115%, and risk free rate of 1.41%. The
$1,035,661 difference between the fair value of the notes and the principal balance is being amortized over the twenty-nine (29) month period from July 31, 2017 to December 31,
2019 or $178,562 and is recorded as a contra interest expense in the statement of operations and comprehensive loss. At December 31, 2017, the unamortized balance of the note payable is
$10,982,438 and the accrued interest on these notes is $448,779 which are included in the balance sheet.

In
March 2017, our subsidiary Napo entered into an exchangeable Note Purchase Agreement with two lenders for the funding of face amount of $1,312,500 in two $525,000 tranches of face
amount $656,250. The notes bear interest at 3% and mature on December 1, 2017. Interest may be paid at maturity in either cash or shares of Jaguar per terms of the exchangeable note purchase
agreement. The notes may be exchanged for up to 2,343,752 shares of Jaguar common stock, prior to maturity date. We assumed the notes at fair value of $1,312,500 as part of the Napo Merger. At
December 31, 2017, the accrued interest on these notes is $29,774. The fair value was calculated using the Binomial Lattice Model using the following criteria: stock price of $0.5893, expected
term of tranche 1 of 0.34 years and tranche 2 of 0.42 years, conversion price of $0.56, volatility of tranche 1 of 70% and tranche 2 of 100%, and risk free
rate of tranche 1 of 1.09% and tranche 2 of 1.13%.

First Amendment to Note Purchase Agreement and Notes

In December 2017, Napo amended the exchangeable note purchase agreement to extend the maturity of the first tranche and second tranche of notes
to February 15, 2018 and April 1, 2018, respectively, increase the principal amount by 12%, and reduce the conversion price from $0.56 per share to $0.20 per share. We also issued
2,492,084 shares of common stock to the lenders in connection with this amendment to partially redeem $299,050 from the first tranche of the notes. The amended face value of the notes is $1,170,950.
This amendment resulted in our treating the notes as having been extinguished and replaced with new notes for accounting purposes due to meeting the 10% cash flow test. We calculated a loss on
extinguishment of notes of $157,500, which is included in loss on extinguishment of debt in the Company's consolidated statement of operations and comprehensive income. The conversion option in the
notes was bifurcated and accounted as a conversion option liability at its fair value of $111,841 using the Black-Scholes-Merton model and the following criteria: stock price of $0.14 per share,
conversion prices of $0.20 per share, expected life of 0.13 to 0.25 years, volatility of 86.29% to 160.78%, risk free rate of 1.28% to 1.39% and dividend rate of 0%. The $111,841 was included
in conversion option liability on the balance sheet and in loss on extinguishment of debt on the statement of operations and comprehensive loss.

At
December 31, 2017, the balance of the notes payable of $1,170,950 was included in convertible notes payable in current liabilities on the consolidated balance sheet. The
accrued interest on these notes of $29,774 is included in accrued expenses in current liabilities on the consolidated balance sheet.

Interest
expense on the notes for the years ended December 31, 2017 and 2016 follows:

Years ended
December 31,

2017

2016

December 2017 convertible note nominal interest

$

8,134

$



December 2017 convertible note accretion of debt discount

41,153



​

​

​

​

​

​

​

​

Total interest expense on convertible debt

$

49,287

$



​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Interest
payable on notes payable was $8,134 and $0 at December 31, 2017 and 2016, respectively.

On
December 8, 2017, we entered into a securities purchase agreement (the "Securities Purchase Agreement") with an existing creditor pursuant to which we issued a promissory note
(the "Note") in the aggregate principal amount of $1,587,500 for an aggregate purchase price of $1,100,000. The Note carries an original issue discount of $462,500, and the initial principal balance
also includes $25,000 to cover the lender's transaction expenses. We will use the proceeds for general corporate purposes. The Note bears interest at the rate of 8% per annum and matures on
September 8, 2018.

Under
the Securities Purchase Agreement, we are subject to certain covenants, including the obligations of the Company to: (i) timely file all reports required to be filed under
Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and not terminate its status as an issuer required to file reports under the Exchange Act;
(ii) maintain listing of the Company's common stock on a securities exchange; (iii) avoid trading in the Company's common stock from being suspended, halted, chilled, frozen or otherwise
ceased; (iv) not issue any variable securities (i.e., Company securities that (a) have conversion rights of any kind in which the number of shares that may be issued pursuant to
the conversion right varies with the market price of the our common stock or (b) are or may become convertible into shares of the our common stock with a conversion price that varies with the
market price of such stock) that generate gross cash proceeds to us of less than the lesser of $1 million and the then-current outstanding balance of the Note without the lender's prior
consent; (v) not grant a security interest in its assets without the lender's prior consent; and (vi) other customary covenants and obligations, for which our failure to comply may be
subject to certain liquidated damages.

In
addition, beginning on January 31, 2018, the lender will have the right to redeem a portion of the outstanding balance of the Note in any amount up to $350,000 per month for
the first six months following the Purchase Price Date and $500,000 per month thereafter. For purposes of calculating the maximum amount that may be redeemed in any month, the amounts redeemed under
the Note will be aggregated with all redemption amounts under the Secured Convertible Promissory Note in the original principal amount of $2,155,000 issued by us in favor of the creditor on
June 29, 2017.

Long-term Debt

In August 2015, we entered into a loan and security agreement with a lender for up to $8.0 million, which provided for an initial loan
commitment of $6.0 million. The loan agreement requires us to maintain

$4.5 million
of the proceeds in cash, which may be reduced or eliminated on the achievement of certain milestones. An additional $2.0 million is available contingent on the achievement
of certain further milestones. The agreement has a term of three years, with interest only payments through February 29, 2016. Thereafter, principal and interest payments will be made with an
interest rate of 9.9%. Additionally, there will be a balloon payment of $600,000 on August 1, 2018 (as modified in the third amendment to the Loan Agreement). This amount is being recognized
over the term of the loan agreement and the effective interest rate, considering the balloon payment, is 15.0%. Proceeds were net of a $134,433 debt discount under the terms of the loan agreement.
This debt discount is being recorded as interest expense, using the interest method, over the term of the loan agreement. Under the agreement, we are entitled to prepay principal and accrued interest
upon five days prior notice to the lender. In the event of prepayment, we are obligated to pay a prepayment charge. If such prepayment is made during any of the first twelve months of the loan
agreement, the prepayment charge will be (a) during such time as we are required to maintain a minimum cash balance, 2% of the minimum cash balance amount plus 3% of the difference between the
amount being prepaid and the minimum cash balance, and (b) after such time as we are no longer required to maintain a minimum cash balance, 3% of the amount being prepaid. If such prepayment is
made during any time after the first twelve months of the loan agreement, 1% of the amount being prepaid.

On
April 21, 2016, the loan and security was amended upon which we repaid $1.5 million of the debt out of restricted cash. The amendment modified the repayment amortization
schedule providing a four-month period of interest only payments for the period from May through August 2016.

On
July 7, 2017, we entered into the third amendment to the Loan Agreement upon which we paid $1.0 million of the outstanding loan balance, and the Lender waived the
Prepayment Charge associated with such prepayment. The Third Amendment modified the repayment schedule providing a three-month period of interest only payments for the period from August 2017 through
October 2017, and reduced the required cash amount that we must keep on hand to $500,000, which will be reduced following the Lender's receipt of each principal repayment subsequent to the
$1.0 million. As the present value of the cash flows under the terms of the third amendment is less than 10% different from the remaining cash flows under the terms of the loan agreement prior
to the amendment, the third amendment was accounted as a debt modification.

As
of December 31, 2017 and 2016, the net long-term debt obligation was as follows:

The
obligation at December 31, 2017 includes an end-of-term payment of $600,000, which accretes over the life of the loan as interest expense. As a result of the debt discount and
the end-of-term payment, the effective interest rate for the loan differs from the contractual rate.

Interest
expense on the long-term debt for the years ended December 31, 2017 and 2016 was as follows:

Years ended
December 31,

2017

2016

Nominal interest

$

214,037

$

457,448

Accretion of debt discount

35,878

64,142

Accretion of end-of-term payment

164,413

267,230

Accretion of debt issuance costs

111,741

178,713

​

​

​

​

​

​

​

​

$

526,069

$

967,533

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Interest
payable on the long-term debt was $9,422 and $29,934 at December 31, 2017 and 2016, respectively.

Warrants

On November 22, 2016, we entered into a Securities Purchase Agreement, or the 2016 Purchase Agreement, with certain institutional
investors, pursuant to which the Company sold securities to such investors in a private placement transaction, which we refer to herein as the 2016 Private Placement. In the 2016 Private Placement, we
sold an aggregate of 1,666,668 shares of our common stock at a price of $0.60 per share for gross proceeds of approximately $1.0 million. The investors in the 2016 Private Placement also
received (i) warrants to purchase up to an aggregate of 1,666,668 shares of our common stock, at an exercise price of $0.75 per share, or the Series A Warrants, and the Placement Agent
received warrants to purchase 133,333 shares of our common stock in lieu of cash for service fees with the same terms as the investors; (ii) warrants to purchase up to an aggregate 1,666,668
shares of our common stock, at an exercise price of $0.90 per share, or the Series B Warrants, and (iii) warrants to purchase up to an aggregate 1,666,668 shares of our common stock, at
an exercise price of $1.00 per share, or the Series C Warrants and, together with the Series A Warrants and the Series B Warrants, the 2016 Warrants. The warrants were granted in
three series with different terms. The warrants were valued using the Black-Scholes-Merton warrant pricing model as follows:



Series A Warrants and Placement Agent Warrants: 1,666,668 warrant shares with a strike price of $0.75 per share and an expiration date
of May 29, 2022; and 133,333 warrant shares to the placement agent with a strike price of $0.75 and an expiration date of May 29, 2022; the expected life is 5.5 years, the
volatility is 71.92% and the risk free rate is 1.87% in valuing these warrants.

Series B Warrants: 1,666,668 warrant shares with a strike price of $0.90 per share and an expiration date of November 29, 2017;
the expected life is one year, the volatility is 116.65% and the risk free rate is 0.78% in valuing these warrants.



Series C Warrants: 1,666,668 warrant shares with a strike price of $1.00 per share and an expiration date of May 29, 2018; the
expected life is 1.5 years, the volatility is 116.92% and the risk free rate is 0.94%.

The
warrant valuation date was November 29, 2016 and the closing price of $0.69 per share was used in determining the fair value of the warrants. The series A warrants and
placement agent warrants were valued at $756,001 and were classified as a warrant liability in the balance sheet. The series A warrants and placement agent warrants were revalued on
December 31, 2016 at $799,201 which is included in the balance sheet, and the $43,200 increase is included in the statements of operations and comprehensive loss. The stock price was $0.716,
the strike price was $0.75 per share, the expected life was 5.41 years, the volatility was 73.62% and the risk free rate was 2.0%. The series B and C warrants were classified as equity,
and as such were not subject to revaluation at year end. Costs incurred in connection with the issuance were allocated based on the relative fair values of the Series A and the Series B
and C warrants. The series A warrants and placement agent warrants were revalued on December 31, 2017 at $103,860 and is included in the balance sheet. The valuation reflects a reduction
of $695,341 from the $799,201 December 31, 2016 valuation. The reduction is included in the statements of operations and comprehensive loss. The $103,860 valuation at December 31,
2017 was computed using the Black-Scholes-Merton pricing model using a stock price of $0.1398, the strike price was $0.75 per share, the expected life was 4.41 years, the volatility was 96.36%
and the risk free rate was 2.14%.

On
July 31, 2017, we entered into Warrant Exercise Agreements (the "Exercise Agreements") with certain holders of Series C Warrants (the "Exercising Holders"), which
Exercising Holders own, in the aggregate, Series C Warrants exercisable for 908,334 shares of our common stock. Pursuant to the Exercise Agreements, the Exercising Holders and we agreed that
the Exercising Holders would exercise their Series C Warrants with respect to 908,334 shares of common stock underlying such Series C Warrants for a reduced exercise price equal to $0.40
per share. We received aggregate gross proceeds of approximately $363,334 from the exercise of the Series C Warrants by the Exercising Holders. The difference between the pre-modification and
post-modification fair value of $23,000 was expensed in general and administrative expense in the statements of operations and comprehensive income. The pre-modification fair value was computed using
the Black-Scholes-Merton model using a stock price of $0.56 (fair market value on modification date), original strike price of $1.00, expected life of 0.83 years, volatility of 115.28%,
risk-free rate of 1.20% to arrive at a fair value of $0.1347 per share. The post-modification fair value was computed using the intrinsic value on the date of modification or $0.16 per share.

We
granted warrants to purchase the 1,224,875 shares of our common stock at an exercise price price of $0.08 per share to replace our Napo subsidiary's warrants upon the consummation of
the Merger. Of the 1,224,875 warrants, 145,457 warrants expire on December 31, 2018 and 1,079,418 warrants expire on December 31, 2025. The warrants were valued at $630,859, using the
Black-Scholes-Merton warrant
pricing model as follows: exercise price of $0.08 per share, stock price of $0.56 per share, expected life ranging from 1.42 years to 8.42 years, volatility ranging from 75.07% to
110.03%, and risk free rate ranging from 1.28% to 2.14%. The warrants were accounted in equity.

Since inception, we have not engaged in the use of any off-balance sheet arrangements, such as structured finance entities, special purpose
entities or variable interest entities.

Critical Accounting Policies and Significant Judgments and Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles, or U.S. GAAP, requires the use
of estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures in the financial statements. Critical accounting policies are
those accounting policies that may be material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and
that have a material impact on financial condition or operating performance. While we base our estimates and judgments on our experience and on various other factors that we believe to be reasonable
under the circumstances, actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies used in the preparation of our
financial statements require significant judgments and estimates. For additional information relating to these and other accounting policies, see Note 2 to our audited financial statements,
appearing elsewhere in this report.

Revenue Recognition

We recognize revenue in accordance with ASC 605 " Revenue Recognition", subtopic ASC 605-25 " Revenue with
Multiple Element Arrangements " and subtopic ASC 605-28 " Revenue RecognitionMilestone Method ",
which provides accounting guidance for revenue recognition for arrangements with multiple deliverables and guidance on defining the milestone and
determining when the use of the milestone method of revenue recognition for research and development transactions is appropriate, respectively. For multiple-element arrangements, each deliverable
within a multiple deliverable revenue arrangement is accounted for as a separate unit of accounting if both of the following criteria are met: (1) the delivered item or items have value to the
customer on a standalone basis and (2) for an arrangement that includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is
considered probable and substantially in our control. If a deliverable in a multiple element arrangement is not deemed to have a stand-alone value, consideration received for such a deliverable is
recognized ratably over the term of the arrangement or the estimated performance period, and it will be periodically reviewed based on the progress of the related product development plan. The effect
of a change made to an estimated performance period and therefore revenue recognized ratably would occur on a prospective basis in the period that the change was made.

We
recognize revenue under its licensing, development, co-promotion and commercialization agreement from milestone payments when: (i) the milestone event is substantive and its
achievability has substantive uncertainty at the inception of the agreement, and (ii) it does not have ongoing performance

obligations
related to the achievement of the milestone earned. Milestone payments are considered substantive if all of the following conditions are met: the milestone payment (a) is
commensurate with either our performance subsequent to the inception of the arrangement to achieve the milestone or the enhancement of the value of the delivered item or items as a result of a
specific outcome resulting from our performance subsequent to the inception of the arrangement to achieve the milestone, (b) relates solely to past performance, and (c) is reasonable
relative to all of the deliverables and payment terms (including other potential milestone consideration) within the arrangement.

We
record revenue related to the reimbursement of costs incurred under the collaboration agreement where the company acts as principal, controls the research and development activities
and bears credit risk. Under the agreement, we are reimbursed for associated out-of-pocket costs and for certain employee costs. The gross amount of these pass-through costs is reported in revenue in
the accompanying statements of operations and comprehensive loss, while the actual expense for which we are reimbursed are reflected as research and development costs.

Determining
whether and when some of these revenue recognition criteria have been satisfied often involves assumptions and judgments that can have a significant impact on the timing and
amount of revenue we will report. Changes in assumptions or judgments or changes to the elements in an arrangement could cause a material increase or decrease in the amount of revenue that we report
in a particular period.

Product Revenue

Sales of Neonorm Calf and Foal to distributors are made under agreements that may provide distributor price adjustments and rights of return
under certain circumstances. Beginning the three months ended December 2017, we developed sufficient sales history and pipeline visibility to recognize revenue when risk and title of products are
transferred to the distributors. Prior to this, revenue recognition depended on notification directly from the distributor that product has been sold to the distributor's customer, and deferred
revenue on shipments to distributors reflected the estimated effects of distributor price adjustments, if any, and the estimated amount of gross margin expected to be realized when the distributor
sells through product purchased from us. Prior to the three months ended December 2017, our sales to distributors were invoiced and included in accounts receivable and deferred revenue upon shipment,
and inventory was relieved and revenue recognized upon shipment by the distributor to their customer. We had Neonorm revenues of $344,194 and $117,523 for the years ended December 31, 2017 and
2016, respectively. The change resulted in the recognition of gross profit of $106,000 consisting of $163,000 in previously deferred revenue and $57,000 in related cost of revenue.

Sales
of Botanical Extract are recognized as revenue when delivered to the customer. We had Botanical Extract revenues of $78,000 and $24,000 in the years ended December 31, 2017
and 2016, respectively.

Sales
of Mytesi are recognized as revenue when the products are delivered to the wholesalers. We had Mytesi revenues of $1,062,920 and $0 in the years ended Decemer 2017 and 2016,
respectively. We record a reserve for estimated product returns under terms of agreements with wholesalers based on its historical returns experience. Reserves for returns at December 31, 2017
were immaterial. If actual returns differed from our historical experience, changes to the reserved could be required in future periods.

Collaboration Revenue

On January 27, 2017, we entered into a licensing, development, co-promotion and commercialization agreement with Elanco US Inc.
("Elanco") to license, develop and commercialize Canalevia ("Licensed Product"), our drug product candidate under investigation for treatment of acute and chemotherapy-induced diarrhea in dogs, and
other drug product formulations of crofelemer for treatment of gastrointestinal diseases, conditions and symptoms in cats and other companion animals. We granted

Elanco
exclusive global rights to Canalevia, a product whose active pharmaceutical ingredient is sustainably isolated and purified from the Croton lechleri tree, for use in companion animals. Pursuant
to the Elanco Agreement, Elanco will have exclusive rights globally outside the U.S. and co-exclusive rights with us in the U.S. to direct all marketing, advertising, promotion, launch and sales
activities related to the Licensed Products. On November 1, 2017, Elanco executed its right to terminate the agreement effective January 30, 2018.

Under
the terms of the Elanco Agreement, we received an initial upfront payment of $2,548,689, inclusive of reimbursement of past product and development expenses of $1,048,689, and will
receive additional payments upon achievement of certain development, regulatory and sales milestones in an aggregate amount of up to $61.0 million payable throughout the term of the Elanco
Agreement, as well as product development expense reimbursement for any additional product development expenses incurred, and royalty payments on global sales. The $61.0 million development and
commercial milestones consist of $1.0 million for successful completion of a dose ranging study; $2.0 million for the first commercial sale of license product for acute indications of
diarrhea; $3.0 million for the first commercial sale of a license product for chronic indications of diarrhea; $25.0 million for aggregate worldwide net sales of licensed products
exceeding $100.0 million in a calendar year during the term of the agreement; and $30.0 million for aggregate worldwide net sales of licensed products exceeding $250.0 million in
a calendar year during the terms of the agreement. Each of the development and commercial milestones are considered substantive. No revenues associated with the achievement of the milestones has been
recognized to date. The Elanco Agreement specifies that we will supply the Licensed Products to Elanco, and that the parties will agree to set a minimum sales requirement that Elanco must meet to
maintain exclusivity. The $2,548,689 upfront payment, inclusive of reimbursement of past product and development expenses of $1,048,689 is recognized as revenue ratably over the estimated development
period of one year resulting in $2,371,300 in collaboration revenue in the year ended December 31, 2017, which is included in the statements of operations and comprehensive loss. The difference
of $177,389 is included in deferred collaboration revenue in the balance sheet.

In
addition to the upfront payments, Elanco reimburses us for certain development and regulatory expenses related to our planned target animal safety study and the completion of the
Canalevia field study for acute diarrhea in dogs. These are recognized as revenue in the month in which the related expenses are incurred. We have $1,380 of unreimbursed expenses as of
December 31, 2017, which is included in Other Receivables on the balance sheet. We included the $504,771 of reimbursements in collaboration revenue in the year ended December 31, 2017,
which is included in the statements of operations and comprehensive loss. On November 1, 2017, the Company received a letter (the "Notice") from Elanco serving as formal notice of Elanco's
decision to terminate the Elanco Agreement by giving the Company 90 days written notice. Pursuant to the terms of the Elanco Agreement, termination of the Agreement became effective on
January 30, 2018, which is 90 days after the date of the Notice. On the effective date of termination of the Elanco Agreement, all licenses granted to Elanco by the Company under the
Elanco Agreement will be revoked and the rights granted thereunder revert back to the Company.

Goodwill and Indefinite-lived Intangible Assets

Goodwill is tested for impairment on an annual basis and in between annual tests if events or circumstances indicate that an impairment loss may
have occurred. The test is based on a comparison of the reporting unit's book value to its estimated fair market value. We perform annual impairment test during the fourth quarter of each fiscal year
using the opening consolidated balance sheet as of the first day of the fourth quarter, with any resulting impairment recorded in the fourth quarter of the fiscal year.

If
the carrying value of a reporting unit's net assets exceeds its fair value, the goodwill would be considered impaired and would be reduced to its fair value. The goodwill was entirely
allocated to the human health reporting unit as the goodwill relates to the Napo Merger. The decline in market capitalization during the year ended December 31, 2017 was determined to be a
triggering event for

potential
goodwill impairment. Accordingly we performed the goodwill impairment analysis. The Company utilized the market capitalization plus a reasonable control premium in the performance of its
impairment test. The market capitalization was based on the outstanding shares and the average market share price for the 30 days prior to December 31, 2017. Based on the results of our
impairment test, the Company recorded an impairment charge of $16,827,000 during the year ended December 31, 2017. If the market capitalization decreases in the future, a reasonable possibility
exists that goodwill could be further impaired in the near term and that such impairment may be material to the financial statements.

Fair
value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates and market factors. Estimating the fair value of individual
reporting units and indefinite-lived intangible assets requires us to make assumptions and estimates regarding our future plans, as well as industry and economic conditions. These assumptions and
estimates include projected revenues and income growth rates, terminal growth rates, competitive and consumer trends, market-based discount rates, and other market factors. If current expectations of
future growth rates are not met or market factors outside of our control, such as discount rates, change significantly, this may lead to a further goodwill impairment in the future. Acquired
in-process research and development (IPR&D) are intangible assets initially recognized at fair value and classified as indefinite-lived assets until the successful completion or abandonment of the
associated research and development efforts. During the development period, these assets will not be amortized as charges to earnings; instead these assets will be tested for impairment on an annual
basis or more frequently if impairment indicators are identified. Based on the results of our impairment test, the Company recorded an impairment charge of $2,300,000 during the year ended
December 31, 2017. In connection with each annual impairment
assessment and any interim impairment assessment in which indicators of impairment have been identified, we compare the fair value of the asset as of the date of the assessment with the carrying value
of the asset on the consolidated balance sheet. If impairment is indicatd by this test, the intangible asset is written down by the amount by which the discounted cash flows expected from the
intangible asset exceeds its carrying value.

Additionally,
as goodwill and intangible assets associated with recently acquired businesses are recorded on the balance sheet at their estimated acquisition date fair values, those
amounts are more susceptible to an impairment risk if business operating results or macroeconomic conditions deteriorate.

In
connection with each annual impairment assessment and any interim impairment assessment in which indicators of impairment have been identified, we compare the fair value of the asset
as of the date of the assessment with the carrying value of the asset on the consolidated balance sheet. If impairment is indicatd by this test, the intangible asset is written down by the amount by
which the discounted cash flows expected from the intangible asset exceeds its carrying value.

Accrued Research and Development Expenses

As part of the process of preparing our financial statements, we are required to estimate accrued research and development expenses. Estimated
accrued expenses include fees paid to vendors and clinical sites in connection with our clinical trials and studies. We review new and open contracts and communicate with applicable internal and
vendor personnel to identify services that have been performed on our behalf and estimate the level of service performed and the associated costs incurred for the service when we have not yet been
invoiced or otherwise notified of the actual cost for accrued expenses. The majority of our service providers invoice us monthly in arrears for services performed or as milestones are achieved in
relation to our contract manufacturers. We make estimates of our accrued expenses as of each reporting date.

We
base our accrued expenses related to clinical trials and studies on our estimates of the services received and efforts expended pursuant to contracts with vendors, our internal
resources, and payments to clinical sites based on enrollment projections. The financial terms of the vendor agreements are subject to negotiation, vary from contract to contract and may result in
uneven payment flows. Payments under some

of
these contracts depend on factors such as the successful enrollment of animals and the completion of development milestones. We estimate the time period over which services will be performed and
the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the related expense accrual
accordingly on a prospective basis. If we do not identify costs that have been incurred or if we underestimate or overestimate the level of services performed or the costs of these services, our
actual expenses could differ from our estimates. To date, we have not made any material adjustments to our estimates of accrued research and development expenses or the level of services performed in
any reporting period presented.

The
Company expenses the total cost of a certain long-term manufacturing development contract ratably over the estimated life of the contract, or the total amount paid if greater.

Accounting for Stock-Based Compensation

Beginning in the second quarter of 2014, we awarded options and restricted stock units. We measure stock-based awards granted to employees and
directors at fair value on the date of grant and recognize the corresponding compensation expense of the awards, net of estimated forfeitures, over the requisite service periods, which correspond to
the vesting periods of the awards. The Company revalues non-employee options each reporting period using the fair market value of the Company's common stock as of the last day of each reporting
period.

Key Assumptions. Our Black-Scholes-Merton option-pricing model requires the input of highly subjective assumptions, including
the fair value of the
underlying common stock, the expected volatility of the price of our common stock, the expected term of the option, risk-free interest rates and the expected dividend yield of our common stock. These
estimates involve inherent uncertainties and the application of management's judgment. If factors change and different assumptions are used, our stock-based compensation expense could be materially
different in the future. These assumptions are estimated as follows:



Fair value of our common stockOur common stock is valued by reference to the publicly-traded price of our common stock.



Expected volatilityAs we do not have any trading history for our common stock, the expected stock price volatility for our common
stock was estimated by taking the average historic price volatility for industry peers based on daily price observations for common stock values over a period equivalent to the expected term of our
stock option grants. We did not rely on implied volatilities of traded options in our industry peers' common stock because the volume of activity was relatively low. We intend to continue to
consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our own common stock share price becomes
available.



Expected termThe expected term represents the period that our stock-based awards are expected to be outstanding. It is based on
the "simplified method" for developing the estimate of the expected life of a "plain vanilla" stock option. Under this approach, the expected term is presumed to be the midpoint between the average
vesting date and the end of the contractual term for each vesting tranche. We intend to continue to apply this process until a sufficient amount of historical exercise activity is available to be able
to reliably estimate the expected term.



Risk-free interest rateThe risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to
the expected term of the options for each option group.



Dividend yieldWe have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable
future. Consequently, we used an expected dividend yield of zero.

ForfeituresWe estimate forfeitures at the time of grant and revise those estimates periodically in subsequent periods. We use
historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest.

Common Stock Valuations. Prior to our IPO, the fair value of the common stock underlying our stock options was determined by our
board of directors,
which intended all options granted to be exercisable
at a price per share not less than the per share fair value of our common stock underlying those options on the date of grant. The valuations of our common stock were determined in accordance with the
guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. The assumptions we used in the
valuation model are highly complex and subjective. We base our assumptions on future expectations combined with management judgment. In the absence of a public trading market, our board of directors,
with input from management, exercised significant judgment and considered numerous objective and subjective factors to determine the fair value of our common stock as of the date of each option grant
and stock award. These judgments and factors will not be necessary to determine the fair value of new awards once the underlying shares begin trading. For now we included the following
factors:



the prices, rights, preferences and privileges of our Series A preferred stock relative to those of our common stock;



lack of marketability of our common stock;

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our actual operating and financial performance;



current business conditions and projections;



hiring of key personnel and the experience of our management;



our stage of development;



illiquidity of share-based awards involving securities in a private company;

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the U.S. capital market conditions; and



the likelihood of achieving a liquidity event, such as an offering or a merger or acquisition of our company given prevailing market
conditions.

The
fair market value per share of our common stock for purposes of determining stock-based compensation is now the closing price of our common stock as reported on The NASDAQ Stock
Market on the applicable grant date.

Classification of Securities

We apply the principles of ASC 480-10 "Distinguishing Liabilities From Equity" and ASC 815-40 "Derivatives and HedgingContracts in
Entity's Own Equity" to determine whether financial instruments such as warrants, contingently issuable shares and shares subject to repurchase should be classified as liabilities or equity and
whether beneficial conversion features exist. Financial instruments such as warrants that are evaluated to be classified as liabilities are fair valued upon issuance and are remeasured at fair value
at subsequent reporting periods with the resulting change in fair value recorded in other income/(expense). The fair value of warrants is estimated using the Black Scholes Merton model and requires
the input of subjective assumptions including expected stock price volatility and expected life.

Income Taxes

As of December 31, 2017, the Company had federal and state net operating loss carryovers of approximately $20,777,790 and $21,432,738,
respectively The federal and state net operating losses will begin to expire in 2033. Our management has evaluated the factors bearing upon the realizability of our

deferred
tax assets, which are comprised principally of net operating loss carryforwards. Our management concluded that, due to the uncertainty of realizing any tax benefits as of December 31,
2017, a valuation allowance was necessary to fully offset our deferred tax assets. We have evaluated our uncertain tax positions and determined that we have no liabilities from unrecognized tax
benefits and therefore we have not incurred any penalties or interest. The Tax Reform Act of 1986, as amended, limits the use of net operating loss and tax credit carryforward in certain situations
where changes occur in the stock ownership of a company. Utilization of the domestic NOL and tax credit forwards may be subject to a substantial annual limitation due to ownership change limitations
that may have occurred or that could occur in the future, as required by the Internal Revenue Code Section 382, as well as similar state provisions.

Recent Accounting Pronouncements

In July 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2017-11, "Earnings Per
Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features,
(Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with
a Scope Exception" ("ASU 2017-11"), which addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked
instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for
entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. The
amendments in Part I of this ASU are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2018. We are currently evaluating the impact of the adoption of ASU 2017-11 on its consolidated financial statements.

In
May 2017, the FASB issued ASU No. 2017-09, "CompensationStock Compensation (Topic 718): Scope of Modification Accounting" ("ASU 2017-09"), which provides guidance
on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. The amendments in this ASU are effective for
all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for
(1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements
have not yet been made available for issuance. The amendments in this ASU should be applied prospectively to an award modified on or after the adoption date. We do not expect the adoption of ASU
2017-09 to have a material impact on our consolidated financial statements.

In
February 2017, the FASB issued ASU No. 2017-05, "Other IncomeGains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope
of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets" ("ASU 2017-05"), which clarifies the scope of the nonfinancial asset guidance in Subtopic 610-20. This ASU also
clarifies that the derecognition of all businesses and nonprofit activities (except those related to conveyances of oil and gas mineral rights or contracts with customers) should be accounted for in
accordance with the derecognition and deconsolidation guidance in Subtopic 810-10. The amendments in this ASU also provide guidance on the accounting for what often are referred to as partial sales of
nonfinancial assets within the scope of Subtopic 610-20 and contributions of nonfinancial assets to a joint venture or other noncontrolled investee. The amendments in this ASU are effective for
annual reporting reports beginning after December 15, 2017, including interim reporting periods within that reporting period. Public entities may apply the guidance earlier but only as of
annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. We do not expect the adoption of ASU 2017-05 to have a material
impact on our consolidated financial statements.

In
January 2017, the FASB issued ASU 2017-04 related to goodwill impairment testing. This ASU eliminates Step 2 from the goodwill impairment test. Under the new guidance, if a reporting
unit's carrying amount exceeds its fair value, the entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that
reporting unit. Previously, if the fair value of a reporting unit was lower than its carrying amount (Step 1), an entity was required to calculate any impairment charge by comparing the implied fair
value of goodwill with its carrying amount (Step 2). Additionally, under the new standard, entities that have reporting units with zero or negative carrying amounts will no longer be required to
perform the qualitative assessment to determine whether to perform Step 2 of the goodwill impairment test. As a result, reporting units with zero or negative carrying amounts will generally be
expected to pass the simplified impairment test; however, additional disclosure will be required of those entities. This ASU will be
effective beginning in the first quarter of our fiscal year 2020. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The new guidance
must be adopted on a prospective basis. We early adopted this ASU in 2017. For impact of the adoption of this standard, refer to Note 6 "Goodwill" to the Condensed Consolidated Financial
Statements.

In
November 2016, the FASB issued Accounting Standards Update No. 2016-18, Statement of Cash Flows: Restricted Cash, or ASU 2016-18, that will require entities to show the changes
in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer present transfers between cash and cash
equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than
one line item on the balance sheet, the new guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet. This reconciliation can be
presented either on the face of the statement of cash flows or in the notes to the financial statements. Entities will also have to disclose the nature of their restricted cash and restricted cash
equivalent balances. ASU 2016-18 becomes effective for fiscal years beginning after December 15, 2017, and interim periods within those years, with early adoption permitted. Any adjustments
must be reflected as of the beginning of the fiscal year that includes that interim period. We are currently evaluating the impact of the adoption of ASU No. 2016-18 on our consolidated
financial statements.

In
August 2016, the FASB issued Accounting Standards Update, or ASU, No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,
which addresses the following cash flow issues: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon debt instruments or other debt instruments with coupon
interest rates that are insignificant in relation to the effective interest rate of the borrowing; (3) contingent consideration payments made after a business combination; (4) proceeds
from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (6) distributions
received from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle.
The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years and are effective for all
other entities for fiscal years beginning after December 15, 2018 and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including
adoption in an interim period. We are currently evaluating the impact of the adoption of ASU No. 2016-15 on our consolidated financial statements.

In
March 2016, the FASB issued ASU No. 2016-09, CompensationStock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies
several aspects of the accounting for employee stock-based payment transactions. The areas for simplification in ASU No. 2016-09 include the income tax consequences, classification of
awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in this ASU will be effective for annual periods beginning after December 15, 2016 and
interim periods within those annual periods.

Early
adoption is permitted. We are currently evaluating the impact of the adoption of ASU No. 2016-09 on our consolidated financial statements.

In
March 2016 the FASB issued ASU No. 2016-07, InvestmentsEquity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting.
This new standard eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an
adjustment must be made to the investment, results of operations and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that
the investment has been held. ASU 2016-07 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. We are currently evaluating the
potential effects of the adoption of this update on its financial statements.

In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which provides guidance for accounting for leases. Under ASU 2016-02, the Company will be required to
recognize the assets and liabilities for the rights and obligations created by leased assets. ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2018. We are currently evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial statements.

In
May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), and subsequently issued modifications or clarifications in ASU
No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent
Considerations (Reporting Revenue Gross versus Net), ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, and ASU
No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. The revenue recognition principle in ASU 2014-09 and the related guidance is
that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for
those goods or services. ASU 2014-09 prescribes a five-step process for evaluating contracts and determining revenue recognition. In addition, new and enhanced disclosures are required. Companies may
adopt the new standard either using the full retrospective approach, a modified retrospective approach with practical expedients, or a cumulative effect upon adoption approach. We have completed the
process of evaluating the effects of the adoption of Topic 606 and determined that the timing and measurement of our revenues under the new standard is similar to that recognized under the previous
revenue guidance. Similar to the current guidance, we will need to make significant estimates related to variable consideration at the point of sale, including chargebacks, rebates and product
returns. Revenue will be recognized at a point in time upon the transfer of control of our products, which occurs upon delivery for substantially all of the our sales. As such, the adoption of ASU
2014-09, ASU 2016-10 and ASU 2016-12 will not have a material impact on our financial position and results of operations. We will adopt the new revenue guidance effective January 1, 2018, by
recognizing the cumulative effect of initially applying the new standard as an increase to the opening balance of retained earnings as prescribed by the modified retrospective method of adoption.

JOBS Act

In April 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of an
extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would
otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period, and, as a result, we will adopt new or revised accounting standards on the
relevant dates on which adoption of such standards is required for other public companies.

We have audited the accompanying consolidated balance sheets of Jaguar Health, Inc. (formerly Jaguar Animal Health, Inc.)(the
"Company") as of December 31, 2017 and 2016, the related consolidated statements of operations and comprehensive loss, stockholders' equity (deficit), and cash flows for each of the two years
in the period ended December 31, 2017. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at
December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2017, in conformity with accounting
principles generally accepted in the United States of America.

Going Concern Uncertainty

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed
in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and an accumulated deficit that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result
from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.

We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
consolidated
financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness
of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our
audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.

Preferred stock: $0.0001 par value, 10,000,000 shares authorized at December 31, 2017 and 2016; no shares issued and outstanding at December 31,
2017 and 2016.





Common stock: $0.0001 par value, 250,000,000 shares and 50,000,000 authorized at December 31, 2017 and 2016, respectively; 62,707,480 and 14,007,132
shares issued and outstanding at December 31, 2017 and 2016, respectively.

6,271

1,401

Common stocknon-voting: $0.0001 par value, 50,000,000 and 0 shares authorized at December 31, 2017 and 2016; 42,617,893 and 0 shares issued and
outstanding at December 31, 2017 and 2016, respectively.